Brazil's Inflation Slows More Than Forecast in Mid-November

Brazil’s central bank held its key rate unchanged at a record low at its last meeting.

25 Nov 2018, 07:54 PM IST

Brazil's Inflation Slows More Than Forecast in Mid-November

A vendor counts real bills at a street market in Brazil. (Photographer: Dado Galdieri/Bloomberg)

(Bloomberg) -- Brazil’s inflation slowed more than expected in the month through mid-November, reinforcing expectations that the policy makers will leave their key interest rate unchanged this year.

The IPCA-15 index rose 0.19 percent from mid-October, after a 0.58 percent jump in the prior month, the national statistics institute reported Friday. The reading was below the median forecast for a 0.24 percent increase from 38 analysts surveyed by Bloomberg. Twelve-month inflation slowed to 4.39 percent.

Key Insights

Brazil’s central bank held its key rate unchanged at a record low at its last meeting, and said risks to inflation have been reduced as political uncertainty declined
Inflation is now expected to close the year nearly 40 basis points below the 4.5 percent midpoint of the central bank’s target range
The currency rallied ahead of the October presidential election, and has given up some gains in the past few weeks
Many analysts expect policy continuity under Roberto Campos Neto, who was nominated last week to succeed Ilan Goldfajn as central bank president

Markets

Swap rates on the interest-rate futures contract maturing in January 2020, an indicator of expected monetary policy decisions, fell 3 basis points to 6.94 percent

What Our Economist Says
With the pressures from May’s trucker strike and the wave of BRL weakness behind us, inflation seems to be retreating to levels consistent with the existing economic slack. Low headline inflation reflects a relief in electricity, gasoline and foodstuff prices, but core inflation also tells a story of low inflationary pressure. All core readings came in at or below 0.3% m/m, pointing to annualized inflation well below the mid-point targets for both this year (4.5%) and the next (4.25%). Looking ahead, this result -- which should be followed by another benign reading for the full-month indicator -- leaves the BCB comfortable to maintain rates at the current 6.5% in the December meeting. -- Adriana Dupita, Bloomberg Economics

What Our Economist Says

With the pressures from May’s trucker strike and the wave of BRL weakness behind us, inflation seems to be retreating to levels consistent with the existing economic slack. Low headline inflation reflects a relief in electricity, gasoline and foodstuff prices, but core inflation also tells a story of low inflationary pressure. All core readings came in at or below 0.3% m/m, pointing to annualized inflation well below the mid-point targets for both this year (4.5%) and the next (4.25%). Looking ahead, this result -- which should be followed by another benign reading for the full-month indicator -- leaves the BCB comfortable to maintain rates at the current 6.5% in the December meeting.

-- Adriana Dupita, Bloomberg Economics

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Food and beverage prices rose 0.54 percent, after a 0.44 percent jump the prior month, the statistics agency said.
Health and personal care costs fell 0.35 percent, helping push the rate of inflation lower
Housing costs dropped 0.13 percent following a 1.46 percent decline in electricity prices

To contact the reporters on this story: David Biller in Rio de Janeiro at dbiller1@bloomberg.net;Walter Brandimarte in Rio de Janeiro at wbrandimarte@bloomberg.net

To contact the editors responsible for this story: Vivianne Rodrigues at vrodrigues3@bloomberg.net, Matthew Malinowski, Peter Millard