Inflation Expected To Ease Further In Key LatAm Markets, But Not Argentina

• In the coming week, Fitch Solutions will be watching inflation prints from several key markets, namely Mexico, Chile, Brazil, and Argentina. In Mexico, it is expected that headline CPI growth will continue cooling from 6.9% y-o-y (0.3% m-o-m) in March, on the back of favourable base effects.
• Fitch still expects Banco de México to hike again by 25bps to a terminal rate of 11.50% in May, but risks to this forecast are skewed to the downside. In terms of the longer-term trajectory for inflation, Fitch anticipates that it will land at 5.1% by the end of 2023, paving the way for 50bps of easing by December.
• In Brazil, inflation came in at 4.7% y-o-y (0.7% m-o-m) in March, a notable slowdown that was mostly due to base effects. However, an acceleration in prices in the second half of 2023 is expected as base effects turn. Headline CPI in Brazil is expected to end the year at 5.8%, though Fitch still expects the Banco Central do Brasil will lower the Selic rate from 13.75% currently to 12.75% by the end of 2023. 
• The outlook for Argentina is much gloomier. Fitch anticipates that in Argentina, prices will continue climbing from 104.3% y-o-y (7.7% m-o-m) in March, as the inflation spiral continues. Argentina nosedived into an economic crisis in 2018 after the peso lost half its value and it has never fully recovered. Annual inflation has remained above 50% for majority of the time since then and reached 103% in February. Additionally, the country, which is a major global grains exporter, is grappling with one of its worst droughts in history knocking billions off the economy from lost exports, thereby fueling domestic prices.
• Given these factors, there is no expectation that Argentine CPI growth will see significant easing this year. Given this, Fitch plans to make an upward revision to its current inflation average forecast of 102.8% in the coming days.

(Source: Fitch Solutions)