The Daily Update - US, Brazil, Mexico - Inflation

After Friday’s inflation numbers in the US, Dallas Fed President Robert Kaplan said he wants to see more confirmation that the Fed is making progress towards its inflation target. He stated, ‘I actually want to now see more evidence that we’re making progress in reaching our inflation objective’, and at the moment he is comfortable with the level of interest rates believing that they are ‘the perfect place for us to be’. On Friday, the inflation numbers missed for the fifth successive month. Both month-on-month and year-on-year were 0.1% lower than expected, coming in at 0.1% and 1.7%, respectively. Minneapolis Fed President Neel Kashkari also thinks that there is a good argument for a wait-and-see policy. ‘The CPI came in today, and again it came in low’ he said, adding ‘We have the luxury of waiting to see what actually happens, before we decide where to go with monetary policy’. At time of writing the chances of a rate hike between now and the end of the year are approximately 30% according to Bloomberg, down from nearly 42% this time last week.

Last week we also had inflation figures out from two of the United States’ southern neighbour’s. According to Brazil’s National Statistics Agency, the Latin American country’s consumer prices rose 0.24% in July, mainly on the back of higher electricity prices, thus the annual inflation rate fell to its lowest level in 18 years. Although the 0.24% figure beat market estimates for 0.18%, and was way better than the 0.23% deflation that occurred in June, the 2.71% in the 12 months through to July is still a long way from the 4.5% target the government set. The sluggish recovery after the South American country’s worst recession in over 100 years means that the government has already revised down its 2019 annual inflation target to 4.25%, and 4% for 2020.

On the other side of the coin we saw Brazil’s neighbour Mexico’s inflation rise more than expected. The 6.44% increase beat estimates and was the fastest pace set since 2008. The main driver behind the increase was the price of fruit and veg. The National Institute of Statistics and Geography (INEGI) said that fruit and veg rose a massive 21.86% in July on an annual basis. However, Agustin Carstens, the central bank Governor, believes the current rate of inflation will not last; and he expects to see the annual rate fall significantly at the start of next year.

Finally, the CIA’s director Mike Pompeo brought some reasoning to the recent tensions between the US and North Korea, announcing ‘I’ve seen no intelligence that would indicate that we’re... on the cusp of a nuclear war’. It seems that China’s President Xi's phone call on Friday to Trump and Kim Jong-un asking them both to 'stop talking' seems to have worked. Although, quite how he manages to get the leader of the free world to shut up is beyond us !!