Mexico Watch: Mid-April CPI, analyst survey, unemployment

Despite recording a modest 0.03% biweekly decrease in Mexico‘s CPI through mid-April, annual inflation pushed above the central bank’s 2-4% target for the first time since January to 4.38% from 4.00% at the end of March.

Annual core inflation was also higher at 3.94% from 3.55%, the highest since the first half of March 2018, according to data reported Wednesday by statistics agency Inegi.

The biweekly decline was weaker than expected, according to Banorte, who had forecast a 0.14% contraction in prices in the first two weeks of April (adding the consensus expected a 0.18% decline).

In a note, Banorte said the “deflation in the period was explained by the seasonal fall of electricity tariffs due to summer discounts, along with some pressures in core goods and other services explained by the Easter holiday.”

Edward Glossop, Latin America economist at Capital Economics, suggested the jump in annual headline and core inflation in Mexico would “temper talk of monetary easing in the coming months. But we still think that inflation will fall in the second half of the year, paving the way for interest rate cuts,” Glossop wrote.

“For our part, we still expect headline inflation to resume its decline in H2. We anticipate that oil prices will fall over the remainder of this year, which will push down fuel inflation,” said Glossop. “At the same time, the recent strength of the peso should help to ease core price pressures.”

Citibanamex survey

The inflation data may temper the growing conviction for a rate cut in June, recorded in Citibanamex’s latest biweekly survey of private sector analysts.

Out of 24 analysts surveyed, 15 (62.5%) expected the central bank to cut the reference rate at least once in 2019 with the number of economists seeing 50 basis points in cuts this year growing to nine economists from seven in the last survey.

GDP forecasts for 2019 were unchanged for the fourth consecutive survey, with the median estimate holding at 1.5%, while the 2020 estimate remained at 1.8%.

A BBVA Research study, released Tuesday, concluded that US industrial and manufacturing data for January and February suggests a disappointment for Mexico’s 1Q19 growth.

“Our tracker point[s] to US GDP declining between -0.4 and -1.2% [seasonally adjusted annual rate] in 1Q19,” wrote BBVA Research. “If confirmed, the US growth path points to annual growth in Mexico of 1.1%-1.4%.”

The firm added that “if the US economy performs worse than our base scenario or the US manufacturing sector decouples as in 1Q, growth might be closer to the lower end of our forecast.”

Unemployment grows

Inegi reported Tuesday Mexico’s seasonally adjusted unemployment rate at 3.56% in March, higher than the 3.43% of the previous month and the 3.46% expected by Banorte.

With the result, the rate surpassed the recent high of 3.55% to reach its highest level since December 2016 in line with steady moderation in formal job creation.

“Nevertheless, the details suggest a mixed picture as part of this increase was explained by a stronger participation rate, which reached a new high since November 2015,” wrote Banorte in a note. “In our view, higher unemployment is likely to result in a slowdown of consumption growth, albeit partially compensated by strong real wage gains.”