Latam Talking Points


Inflation continued decreasing in March, more than expected by the market, with stronger evidence that the disinflationary process is gaining traction. CPI inflation posted 0.32% month-over-month in March, closer to our forecast (0.35%) than to median market expectations (0.40%, as per Bloomberg). Notably, the inflationary pressure was largely circumscribed to a few items, considering that 5 goods (gasoline, tomatoes, lemons, chickens, and tourism package services) accounted for over nine tenths of the month’s CPI print. Importantly, the gap between monthly CPI inflation and 10-year median variations (proxy of normal inflation levels) has been decreasing gradually to -2bps in March from – on average – 4bps in 1Q18, 10bps in 2H17, and 23bps in 2017. Headline inflation fell to 5.04% year-over-year in March (from 5.34% in February), and core inflation decreased to 4.02% (from 4.27%) during the same period.
The significant decrease of inflation in 1Q18 implies that a rate hike at the Central Bank’s next meeting (April 12) is unlikely. The point is that average annual inflation came in below Banxico’s forecasts for 1Q18 (CPI 5.3% vs. 5.5%, core 4.3% vs. 4.4%) and Governor Díaz de León has been stressing that deviations with respect to these quarterly forecasts (recent innovation presented in the QIR) will be important for rate decisions. Of course, the appreciation of the Mexican peso, over more constructive NAFTA renegotiations, is another important reason for not hiking. Our base case is that inflation will decrease to 3.7% by the end of 2018 (below median market expectations of 4.1%, according to the Central Bank’s last survey).
** Full Story here.

Day Ahead: The National Association of Department Stores and Supermarkets (ANTAD) will announce March’s same-store-sales throughout the day. We expect sales to accelerate significantly to 8.00% year-over-year (consensus: 9.00%).


Chile recorded the largest trade surplus in the first quarter of a year since 2011, hinting that the current account deficit will remain low. In March, the trade balance recorded a USD 792 million surplus, just below the Bloomberg market consensus of USD 850 million and our USD 825 million forecast. The resulting trade surplus in 1Q18 was USD 3.2 billion, larger than the USD 1.1 billion in 1Q17 and the largest since the USD 4.2 billion in 1Q11. Elevated mining exports, mainly aided by price, are the principal driver of the trade improvement along with firm global growth. The 12-month rolling trade surplus increased to USD 10.1 billion, from USD 7.9 billion in 2017 and USD 5.4 billion in 2016.

Total exports gained 24.3% year over year in 1Q18 (from 17.2% in 4Q17), with mining exports gaining 32.1% (30.8% in 4Q17). A low base of comparison due to the extensive labor strike in 1Q17 favors mining export growth, but higher prices are also playing a role. Agriculture exports rose 31.1% year over year, recovering from the 23.9% drop in 4Q17, boosted by fruit exports. Industrial exports are also performing well, growing 12.9% in the quarter (5.4% in 4Q17), lifted by paper and chemical products. In 1Q18, total imports rose 11.5% (11.7% in 4Q17). Consumer imports are still performing well, up 13% in 1Q18 (14.1% in 4Q17), led by semi-durable goods imports, while durable imports are still robust (11% versus 12% in 4Q17). Energy imports increased 11.7% as international fuel prices stay high, but it was a slowdown from the 25.6% in 4Q17. Meanwhile, capital goods imports increased 2.1% (4.5% in 4Q17), with machinery and equipment imports up 4.1% (8.1% previously), in line with a recovery in investment. We expect the current account deficit to remain contained this year. A gradual recovery of internal demand and robust copper exports support our view of a 1.2% of GDP current account deficit this year (1.5% last year). ** Full Story here.

Despite improving from one year ago, consumer confidence retreated to neutral levels (50) in March after completing three months in optimistic territory (51.1 in February). Adimark’s consumer confidence index at 50 points is still a 12.7 points gain over a 12-month period (the second highest gain in this recovery cycle since February’s 14.1 point gain). The sub-index that evaluates the 5-year economic outlook of the country remains in pessimistic territory (at a stable 41.3), while the other sub-index in pessimistic territory is the evaluation of an individual’s current economic standing (up to 43.9 from 42.3 in February). Meanwhile, consumer expectation to purchase household goods dipped to 57.2 points (59.9 in February), while the 12-month ahead economic expectation came in at 61.2 (63.7 in February). In the months ahead, as inflation stays low, monetary policy remains expansionary and the labor market gradually recovers, it is likely that consumer confidence returns to optimistic ground. We expect activity growth to pick up to 3.6% this year, from the 1.5% last year.


According to Focus survey, the median GDP growth expectations for 2018 declined 4bps to 2.80%, and did not change for 2019 and 2020 (at 3.00% and 2.50%, respectively). The IPCA inflation expectations for 2018 slightly declined to 3.53% (from 3.54%). For 2019, the median inflation expectations increased 1bp to 4.09%, while it has remained flat (at 4.00%) for 2020. The year-end Selic rate expectations remained flat for the three years horizon (2018-2020): at 6.25% for 2018, and 8.00% for 2019 and 2020. Median forecasts for the exchange rate stood flat at BRL 3.30/USD for 2018, and barely changed for 2019 and 2020 (at BRL 3.39/USD and BRL 3.45/USD, respectively).

Weekend news flow was focused on former President Lula’s arrest and the political arrangements for the Presidential election. Last Saturday was the deadline for those taking part on the Presidential race to leave executive positions and join parties. TV presenter Luciano Huck did not join a political party, therefore will not run. Henrique Meirelles joined the MDB (former PMDB) and stepped down as Finance Minister. Former Supreme Court President Joaquim Barbosa, who became well-known by the general public in Brazil when he was rapporteur of the “mensalão” political scandal of 2006, joined the PSB. Geraldo Alckmin and Joao Dória (PSDB) resigned from São Paulo governor and mayor position, respectively.

Moody’s has changed the outlook on Brazil’s ratings to stable from negative (affirming the current Ba2 rating). The change was driven by Moody’s expectation that the next administration will pass the fiscal reforms needed to stabilize debt metrics over the medium term and that higher-than-expected short- and medium-term growth prospects will support fiscal consolidation efforts. In short, Moody’s believes that the downside risks to growth and uncertainty regarding the reform momentum that led to the assignment of the negative outlook to the Ba2 rating in May of last year have receded.

Day Ahead: March’s IPCA inflation will be released at 9:00 AM (SP Time). We forecast a 0.11% monthly increase (consensus: 0.12%), with the 12-month reading at 2.7% (consensus: 2.71%). The Central Bank announced another FX swap rollover auction of up to 3,400 contracts.


Day Ahead: The central bank will announce its reference rate (7-day-repo rate) at 5:00 PM (SP Time). We expect a 50-bps hike to 27.75%. While the guidance suggests the central bank is willing to wait for inflation data after April before hiking rates, we think the fast depletion of already-low reserves will convince the board to tighten monetary policy sooner. In addition, the most recent survey of expectations showed analysts increasing further its inflation forecasts for this year and the next. Finally, we note recent activity numbers indicate the economy maintains a solid momentum, giving policy makers more room to conduct monetary policy.

Fuente: Itaú

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