Latin America Economic Research

Research evidence excerpt

Latin America Economic Research

he bar for

traction. The day after Banxico’s decision, July inflation data renewed easing and creates an asymmetric risk around an oth-

should show headline inflation running at 3.10%oya, as both erwise prolonged pause.

core and non-core inflation continue to trend lower. On the

growth front, next week’s demand-side data releases should We continue to expect rates on hold for the foreseeable future,

provide additional insight following this week’s flash 2Q though we will reassess our framework after Banxico’s state-

GDP report. The strong print was underpinned by robust ment next week. By incorporating the increased risk of hikes

growth early in the quarter, although momentum weakened from the Fed, as was evident in the COPOM Minutes earlier

thereafter. In line with this moderation, we expect declines in this month, we believe “relative monetary conditions” will

both consumption and investment during May. gain relevance as soon as next week.

Banxico preview - Holding course July CPI Preview: Just a touch above target

Next week, we expect Banxico to keep the policy rate The inflation print for the full month of July should come in

unchanged at 6.50%, extending the pause that followed the close to Banxico’s 3% target, with headline inflation expected

end of the easing cycle in May. In our view, the current policy at 3.10%oya (Figure 2), as the favorable inflation dynamics

stance remains broadly consistent with domestic conditions, observed in the first half of the month are likely to extend into

as inflation remains just 10bps above the 3% target and eco- the second half. Core inflation should decline to 3.94%oya, as

nomic slack continues to linger. Therefore, the discussion is benign core goods inflation helps offset upside pressures in