• Colombia: Citi survey shows expectations of robust economic growth and higher inflation, with terminal monetary policy rate now expected at 8.50%
  • Mexico: Inflation in-line with consensus in early May, but year-end expectations remain on the upside

COLOMBIA: CITI SURVEY SHOWS EXPECTATIONS OF ROBUST ECONOMIC GROWTH AND HIGHER INFLATION, WITH TERMINAL MONETARY POLICY RATE NOW EXPECTED AT 8.50%

The latest Citi Survey, which BanRep uses as one of its measures of inflation expectations, the monetary policy rate, GDP, and the COP, came out on Tuesday, May 24. Key points included:

  • Projections regarding economic activity improved after the Q1-2022 upside surprise. For 2022, economic growth is expected to hit 5.42%, well above the previous forecast (5.06%). For 2023, economic growth expectations fell to 2.87%, down from 3.03% previously. Ahead of 2024, the growth is expected at 3.23% as compared to the previous reading of 3.18%. 
  • Inflation expectations further diverged from BanRep’s target range. May’s monthly inflation rate is expected to be 0.83% m/m and 9.05% y/y. Scotiabank Economics’ forecast is close to consensus with 0.84% m/m and 9.06% y/y. We still expect upside pressures on food inflation. But as we don’t anticipate extraordinary effects in other components of the consumer price basket, the monthly inflation might be lower than in previous months. Annual inflation will fall from the previous 9.23% to 9.05% due to statistical effects on food prices (mainly reflecting the nationwide strike one year ago). However, consensus expects headline inflation to close 2022 at 8.44% well above the previous expectation of 7.17%, and core inflation is also expected to stand at 6.51%, above the central bank’s target range.
  • Ahead of June’s monetary policy meeting, 12 out of 25 analysts expect a 100 bps hike in the policy rate, 11 are calling for a 150 bps increase, and two project a 125 bps move (chart 1). Meanwhile, the policy rate is expected to close in 2022 at 8.50%, above the previous survey of 7.75%. In 2023, consensus has the monetary policy returning to 6.50% (again above the previous survey’s 5.50%). Scotiabank Economics anticipates an 8% terminal rate in 2022 and we have revised our expectation for 2023 up from 5.5% to 6%.

  • The USD COP forecasts point to a mild appreciation in the currency through December 2022. On average, respondents expect a level of USDCOP 3,832 by the end of 2022 (previous survey: 3,971) and 3,751 pesos by 2023.

—Sergio Olarte, Maria (Tatiana) Mejía, & Jackeline Piraján

MEXICO: INFLATION IN-LINE WITH CONSENSUS IN EARLY MAY, BUT YEAR-END EXPECTATIONS REMAIN ON THE UPSIDE

According to INEGI, annual headline inflation decelerated from 7.65% y/y to 7.58% in the first half of May, broadly consistent with the consensus estimate 7.57% (chart 2). Core inflation eased slightly, from 7.27% y/y to 7.24%, as prices for services went from 4.73% y/y to 4.76% and merchandise goods prices from 9.52% y/y to 9.45% (chart 3). Non-core inflation also moderated, dropping from 8.76% y/y to 8.60%, with agricultural products decelerating from 13.49% y/y to 12.67%, while energy products rose from 6.04% y/y to 6.32% (chart 4). In its biweekly sequential comparison, inflation dropped -0.6% 2w/2w from 0.18%. Core inflation rose from 0.27% 2w/2w to 0.31%, with merchandise prices at 0.35% and services at 0.25%. Non-core inflation dropped from -0.09% 2w/2w to -1.15%, with agriculture and livestock at 0.47%, and energy at -3.46%.


Because Mexico’s plan to contain inflation was only launched in the first days of the month, its contribution to the slowdown in inflation was marginal. More significant was the beginning of the seasonal summer subsidies to electricity charges, which drove the decrease in energy prices. In fact, several products covered by the PACIC anti-inflation plan in the basic consumption basket were also the ones that contributed the most to the increase in inflation, including, for example, tomatoes, eggs, chicken, oranges and milk. This fact reinforces our view that the PACIC is likely to have only a limited effect.

—Brian Pérez & Miguel Saldaña

DISCLAIMER

This report has been prepared by Scotiabank Economics as a resource for the clients of Scotiabank. Opinions, estimates and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. Neither Scotiabank nor any of its officers, directors, partners, employees or affiliates accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents.

These reports are provided to you for informational purposes only. This report is not, and is not constructed as, an offer to sell or solicitation of any offer to buy any financial instrument, nor shall this report be construed as an opinion as to whether you should enter into any swap or trading strategy involving a swap or any other transaction. The information contained in this report is not intended to be, and does not constitute, a recommendation of a swap or trading strategy involving a swap within the meaning of U.S. Commodity Futures Trading Commission Regulation 23.434 and Appendix A thereto. This material is not intended to be individually tailored to your needs or characteristics and should not be viewed as a “call to action” or suggestion that you enter into a swap or trading strategy involving a swap or any other transaction. Scotiabank may engage in transactions in a manner inconsistent with the views discussed this report and may have positions, or be in the process of acquiring or disposing of positions, referred to in this report.

Scotiabank, its affiliates and any of their respective officers, directors and employees may from time to time take positions in currencies, act as managers, co-managers or underwriters of a public offering or act as principals or agents, deal in, own or act as market makers or advisors, brokers or commercial and/or investment bankers in relation to securities or related derivatives. As a result of these actions, Scotiabank may receive remuneration. All Scotiabank products and services are subject to the terms of applicable agreements and local regulations. Officers, directors and employees of Scotiabank and its affiliates may serve as directors of corporations.

Any securities discussed in this report may not be suitable for all investors. Scotiabank recommends that investors independently evaluate any issuer and security discussed in this report, and consult with any advisors they deem necessary prior to making any investment.

This report and all information, opinions and conclusions contained in it are protected by copyright. This information may not be reproduced without the prior express written consent of Scotiabank.

™ Trademark of The Bank of Nova Scotia. Used under license, where applicable.

Scotiabank, together with “Global Banking and Markets”, is a marketing name for the global corporate and investment banking and capital markets businesses of The Bank of Nova Scotia and certain of its affiliates in the countries where they operate, including; Scotiabank Europe plc; Scotiabank (Ireland) Designated Activity Company; Scotiabank Inverlat S.A., Institución de Banca Múltiple, Grupo Financiero Scotiabank Inverlat, Scotia Inverlat Casa de Bolsa, S.A. de C.V., Grupo Financiero Scotiabank Inverlat, Scotia Inverlat Derivados S.A. de C.V. – all members of the Scotiabank group and authorized users of the Scotiabank mark. The Bank of Nova Scotia is incorporated in Canada with limited liability and is authorised and regulated by the Office of the Superintendent of Financial Institutions Canada. The Bank of Nova Scotia is authorized by the UK Prudential Regulation Authority and is subject to regulation by the UK Financial Conduct Authority and limited regulation by the UK Prudential Regulation Authority. Details about the extent of The Bank of Nova Scotia's regulation by the UK Prudential Regulation Authority are available from us on request. Scotiabank Europe plc is authorized by the UK Prudential Regulation Authority and regulated by the UK Financial Conduct Authority and the UK Prudential Regulation Authority.

Scotiabank Inverlat, S.A., Scotia Inverlat Casa de Bolsa, S.A. de C.V, Grupo Financiero Scotiabank Inverlat, and Scotia Inverlat Derivados, S.A. de C.V., are each authorized and regulated by the Mexican financial authorities.

Not all products and services are offered in all jurisdictions. Services described are available in jurisdictions where permitted by law.