Economics: Inflation is a major concern, with core prices sticky, consumption demand and oil prices strong, and the public deficit continuing to swell
One of the main concerns looming over the economy in the final stretch of 2023 and throughout 2024 is the direction of inflation, with its implications for monetary policy, interest rates, exchange rates and, ultimately, economic growth. While continuing to recede, core inflation’s recent trajectory is largely explained by the stickiness of the services component even as it continues to lag core goods. Likewise, there has been an expansion of demand in both consumption and investment, and there are factors that could generate additional pressures by 2024. These include rising oil and fuel prices in response to geopolitical instability, an expansive fiscal policy with a growing public deficit, and the impact of drought on the agricultural sector, which will translate into lower production volumes and a consequent impact on commodity prices. In this week’s Economic Outlook, we analyze the recent evolution of the main inflation components and how they are likely to perform through the balance of the current year and in 2024.
In economic news this past week, industrial activity grew an annual 5.0% in August, almost entirely on the strength of construction activity as manufacturing contracted for the first time in almost two years. That same month the number of people working in the manufacturing sector was flat even as pay and benefits grew significantly, while same store sales among retailers affiliated with Antad barely edged above levels of a year prior in September.
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