- Mexico: Another month of investment declines, consumption contracts
- Peru: Inflation remains anchored at 1.7% in July
MEXICO: ANOTHER MONTH OF INVESTMENT DECLINES, CONSUMPTION CONTRACTS
In May, gross fixed investment declined on an annual basis for the ninth consecutive month, improving from -12.6% to -7.1% (chart 1). The sharpest drop came from machinery and equipment, which fell for the fifth straight month, now at -10.3%, with declines in both domestic and imported components. Meanwhile, construction marked ten months of contraction, falling -4.3% due to a steep decline in non-residential construction (-17.5%), although residential construction grew by 9.6%. As a result, investment accumulated a -7.0% YTD drop in the first six months of the year.
On a seasonally adjusted monthly basis, gross fixed investment rose 0.9% m/m, driven by a 1.4% increase in construction, while machinery and equipment remained flat at 0.0%. Looking ahead, we believe that persistent domestic and global uncertainty will continue to breed caution among investors. Combined with a decline in public spending, this is likely to keep investment weak in the second half of the year.
Private consumption in May posted a -1.6% annual decline, marking two consecutive months of contraction (chart 2). The figure was worse than the market consensus of -0.2%, though slightly better than April’s -1.8% drop. This weakness was mainly due to a sharp -7.1% annual fall in imported goods consumption, particularly in durable goods (-11.6%) and semi-durables (-12.8%). Meanwhile, consumption of domestic goods and services fell -0.4% annually. Within this category, goods declined -1.9%, while services remained resilient with a 1.3% annual increase.
—Rodolfo Mitchell & Miguel Saldaña
PERU: INFLATION REMAINS ANCHORED AT 1.7% IN JULY
Headline inflation increased by 0.23% m/m in July, slightly above Bloomberg’s market consensus average (0.2%) (chart 3). The monthly figure was below the 20-year historical average (+0.31%) but similar to that recorded in the same month of 2024 (+0.24%). As a result, annual inflation remained stable at 1.7% for the fourth consecutive month, marking eight straight months below the midpoint of the BCRP’s target range (2.0%).
By category, the main positive contributions during the month came from two divisions:
1. Food and non-alcoholic beverages (+0.53%), due to a significant increase in the prices of fish and fruits.
2. Transportation (+0.48%), driven by seasonal increases in interprovincial bus and airfares during the Peruvian Independence Day vacation period.
These contributions were partially offset by price declines in the housing, gas, and other fuels category (-0.2%), linked to lower international oil prices and reduced housing rental costs.
Core inflation, the trend component that excludes food and energy, rose slightly by 0.18% m/m in July, below the 20-year historical average (+0.23%) and similar to the figure recorded in July 2024 (+0.19%). On an annual basis, it remained at 1.7%, marking five consecutive months below the midpoint of the target range.
We preliminarily project that monthly inflation in August will be positive and will stand around +0.1%. As a result, the 12-month figure is likely to remain close to 1.6%. For the upcoming BCRP board meeting on August 14th, we lean toward the view that no changes will be made once again (for the third consecutive month), keeping the reference rate at 4.50%. Expectations for economic activity have been experiencing some deterioration, although they remain in the optimistic range. The July survey will be published on August 7th, and it is important to monitor its evolution, as the BCRP considers these results when making decisions about its reference rate (chart 4).
—Ricardo Avila
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