Week Ahead: Inflation Prints, Central Bank Decisions Will Shape Direction of Monetary Policy in Latin America

• In 2022, every major regional central bank across Latin America is expected to continue the rate hiking cycles that began in 2021. In response to elevated inflation, this week’s data prints and monetary policy decisions from Brazil and Mexico will shed more light on the likely pace and magnitude of the coming rate hikes across the region. 
• Brazil’s inflation is likely to decelerate in January slightly from the 10.4% y-o-y (0.8% m-o-m) pace seen in December 2021, though the rate of price growth is likely to remain above 10.0% in January and much of H1 2022. Fitch forecasts that Banco Central do Brazil (BCB) will hike its benchmark interest rate to 10.75% in Q1 2022, holding it through the end of the year, but January’s inflation print could pose risks to the upside of this forecast. 
• Mexico’s inflation weakened slightly in the second half of December, to 7.26% y-o-y (0.01% m-o-m). It is expected that price growth will continue to decelerate towards 7.00% in the first half of January. If inflation surprises to the upside, it will put additional pressure on the Bank of Mexico (Banxico) to potentially step up its rate hiking cycle. The Agency projects Banxico will hike from 5.50% currently to 6.50% at end-2022. 
• Given the contractionary activity in October (-0.7% y-o-y), only a slight recovery in economic activity is expected in November, though the overall economy will remain relatively weak. Fitch estimated a 5.6% growth in Mexico in 2021, decelerating to 2.8% in 2022.

 (Source: Fitch Solutions)