Inflation Retreat in Latin America Put to Test: Eco Week Ahead

Coronavirus cases in Latin Americas two biggest economies -- Brazil and Mexico -- are soaring, leaving the region with its worst recession since at least 1901.

That downturn is reflected in consumer prices, with most countries now facing a rare period of disinflation as demand plunges. In May, all the major economies in the region apart from Argentina had an annual inflation rate below 3%.

Data published this week for June are forecast to show year-on-year consumer price increases in Chile and Brazil holding near May‘s levels while Mexico’s probably pushed just over 3% -- still well within the central banks target range.

Unwelcome Disinflation

Five major economies with sub-3% annual CPI

Sources: National statistics agencies

What Bloombergs Economists Say:

“After two consecutive months of deflation, Brazil inflation is expected to have risen slightly in June, driven mostly by recovering gasoline prices. Elsewhere, prices remains muted: core inflation readings are threading close to zero and inflation expectations remain well below the target for this year and the next, leaving plenty of room for interest rates to remain exceptionally low.”

--Adriana Dupita, senior economist

Elsewhere, Malaysia and Mauritius may cut interest rates, while central banks in Israel, Australia and Peru are predicted to hold.

Click here for what happened last week and below is our wrap of what else is coming up in the world economy.

U.S. and Canada

It‘s a relatively light week for U.S. data with most eyes focusing on Thursday’s jobless claims data to see if a rush for unemployment benefits remains underway. That follows the JOLTS report on Tuesday which is expected to show the number of unemployed exceeding job openings, highlighting the severeness of the labor market slack. Friday sees the release of producer prices numbers which are set to show factory-gate costs remain weak.

Canada‘s government will release its first estimate of this year’s budget deficit on Wednesday. Thats two day before the country is expected to report another half million workers found jobs last month as pandemic-related restrictions are gradually lifted, a second straight gain that will still leave the unemployment rate at near record highs.

• For more, read Bloomberg Economics full Week Ahead for the U.S.

Europe, Middle East and Africa

U.K. Chancellor Rishi Sunak is set to unveil an economic update to Parliament on Wednesday, a week after a speech by Prime Minister Boris Johnson came under criticism for failing to deliver a meaningful stimulus package. For businesses and investors alike, the key will be what the finance chief can promise in the short term to save jobs.

May industrial production figures for countries including Germany, Spain and France could confirm European Central Bank policy makers recent comments that the euro-area recession may be bottoming out.

One Out of Five

Of sub-Saharan Africas five biggest economies, only Ethiopia is projected to expand this year

Source: International Monetary Fund

The African Development Bank will probably make significant cuts to its growth forecasts when it releases a supplement to its January outlook on Tuesday: of sub-Saharan Africas five largest economies, only one, Ethiopia, is projected by the IMF to expand this year.

The Bank of Israel will probably hold its main interest rate at 0.1% on Monday, although one of the six members of the monetary policy committee voted at the last meeting for a cut to zero, saying itd be more appropriate given the magnitude of the Covid-19 crisis.

Central Bank Rate Decisions This Week

Source: Bloomberg

The Mauritian central bank could ease policy further on Wednesday, while Serbia is expected to keep borrowing costs unchanged Thursday. Romania may hold another surprise board meeting to ease monetary policy in a bid to support the economy.

• For more, read Bloomberg Economics full Week Ahead for EMEA

Asia

Australias central bank will meet Tuesday with its yield curve control policy in cruise control for now. Malaysias central bank meets that afternoon, with most economists seeing a rate cut, according to initial survey results.

China CPI and PPI data will be scrutinized on Thursday to gauge the health of domestic demand and to see whether the nations factories are regaining any pricing power.

• For more, read Bloomberg Economics full Week Ahead for Asia

Latin America

Perus central bank will keep its key rate at 0.25% on Thursday. Thats the same day Mexico posts the minutes of its June 25 meeting and may offer forward guidance on where board members see the lower bound and hence room for policy maneuver.

In Argentina, the debt renegotiation between the government and its main bondholders approaches its third month of official talks without an agreement in sight. The week may bring additional attempts to bridge a gap that until now has been hard to close.

• For more, read Bloomberg Economics full Week Ahead for Latin America

— With assistance by Theophilos Argitis, Benjamin Harvey, Simon Kennedy, Malcolm Scott, Alaa Shahine, and Rene Vollgraaff