Has economic activity returned to 2019 levels? Based on the data, the answer is a qualified “yes.” The index for economic activity rebounded in H1 2021, after falling around 7.8% in 2020, with services mainly saving the day. If social unrest doesn’t resurface with enough intensity to damage economic activity as it did in Q2, the rest of 2021 will see the economy posting strong results, as agriculture, mining, manufacturing and construction will be able to thrive.
Inflation in July surprised everyone. Monthly CPI rose 0.32%, far above the 0.04% increase expected by analysts surveyed by the Central Bank. Annual inflation is now 3.97%, barely below 4% target range. Unwinding utility price freezes, restaurants reopening after months of enforced closure and food inflation spikes on the heels of the May and June national strikes are key factors. We think there is a 75% probability of a split decision in favor of a first 25 bp hike in intervention rates, at the September Central Bank board meeting.
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