Inflationary pressures give markets a breather

The bad news came from the side of core inflation, since not only has it not decreased, but it has risen again to levels of 8.42%, that is, above general inflation, when in September it stood at 8.28 percent. hundred.

As we warned in this same space, the inflation data for the month of October, both for the United States and Mexico, which would be published throughout the past week, would continue to govern the behavior of the markets, and finally, it seems that inflationary pressures begin to ease, thus giving the markets a breather.

And it is that in our country, the general inflation data published by the Inegi were located at levels of 8.41% compared to 8.70% in September.

However, the bad news came from the side of core inflation, which is calculated by eliminating the variation in food and energy prices as they are the most volatile, since not only has it not decreased, but it increased again at the same time. be located at levels of 8.42%, that is, above general inflation, when in September it was located at 8.28 percent.

This means that the elements responsible for inflationary pressures globally: food and energy, have begun to reduce their prices, but in Mexico inflationary pressures are not only due to these products, but also the prices of the rest of the products. that make up the indicator have continued to rise, which, unlike the United States, makes the light at the end of the tunnel appear even further.

Consequently, and as anticipated by the market, Banco de México raised its reference rate by 75 basis points by majority vote to place it now at levels of 10%, going hand in hand with the movements that the Fed has been making recently. .

Meanwhile, in the United States, general inflation fell to levels of 7.75% against the reading for the month of September, which placed it at 8.20%, while core inflation, and unlike that of Mexico, also fell to 6.28% against 6.63%, maximum level reached last month.

With this, headline inflation has dropped in the last two months and core inflation started to drop as early as this month.

It remains to tell you that the stock markets threw themselves into the party after releasing these data by having their best session since 2020, where the S&P 500 index advanced 5.5% and the NASDAQ Composite 7.5%, betting that the Fed will start raising its rate more moderately from December.

In fact, the Fed’s reference rate futures listed in Chicago discount with a probability of 80.6% that the increase at its meeting on December 14 will be 50 basis points, and only 19.4% think that could be 75 basis points.

The bad news is that the dose of medicine applied by the Fed could prove to have been a bit excessive, since various economic indicators show that the reduction in inflation could be due to a reduction in demand, instead of being on the side of the supply of goods and services, which causes the specter of recession to haunt the largest economy in the world, which happens to be our main trading partner and neighbor, which would translate into less income for our country due to minor exports.

To the above, we must add the fact that the super peso does not loosen, since during the week it depreciated just 0.05% to settle at 19.50 pesos/dollar versus 19.49 the previous week, highlighting that it reached minimum levels of 19.26 , so there was volatility.

And contrary to what was expected, the red wave of the Republican Party in the midterm elections was not present, and although it is true that they were left with a very tight majority in the House of Representatives, it seems difficult for them to take control of the Senate , which will be convenient for the markets because perhaps this means less volatility, at least politically.

You will have to be very careful!

aga@gamaa.com.mx