Economics: Mixed data in October — aggregate demand components show significant growth but inflation remains high
Economic news in October delivered some strong indicators, starting with aggregate supply and demand data for the second quarter of 2022 showing growth in private consumption and investment that surpassed expectations. Private expenditure is now running near its peak from the fourth quarter of 2019, and as of July the retail revenue index was almost 6% above year-earlier readings. However, both private spending and investment were heavily skewed toward purchases of imported goods, trends that have been greatly aided by a strong and relatively stable peso.
Just this past week, Inegi reported that retail sales widened 4.6% yoy in August, just shy of the 5.0% cumulative average year to date. Nevertheless, consumption and consumers are faced with inflation that in September reached the highest reading Mexico has seen 21 years and nine months. Federal government efforts to curb the cost of the basic basket have shown very limited results even as the strategies implemented pose a number of risks to the Mexican economy.
The Foreign Direct Investment (FDI) data for the first half of 2022 was favorably distorted by one-time transactions but also benefitted from the North America’s continuing nearshoring trend. However, there is continuing weakness in investment in M&E of Mexican origin and construction.
Industrial growth continues to be driven by manufacturing, largely on the strength of foreign, mostly US, demand. But there are reasons to suspect the economy may struggle next year as the international situation deteriorates, including the prospect that the US may stall, or even enter into recession.
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