Latin America’s Top Economies Add to Streak of Low Inflation

(Bloomberg) --

Brazil’s and Mexico’s annual inflation rates remained subdued in October as central banks in both nations plan fresh interest rate cuts.

Consumer prices as measured by Brazil’s benchmark IPCA index rose 2.54% in the 12 months through October, while Mexico’s annual inflation reached 3.02%, according to government data published on Thursday. The South American nation targets annual inflation of 4.25% this year, while Mexico’s goal is 3%.

Cost of living increases in both countries remain tame amid weak activity and wavering confidence. Brazil has struggled to lower double-digit unemployment rates, while Mexican President Andres Manuel Lopez Obrador’s policies have eroded investor trust in the economy. Policy makers in both nations are injecting stimulus via their central banks.

Amid tight fiscal policy, Mexico’s monetary authority is stepping in with easing, which is expected to continue in its next scheduled decision on Nov. 14. Policy makers are forecast to cut Mexico’s key interest rate a quarter point to 7.5%.

What Our Economist Says

Mexico’s headline inflation in line with the target and lower core inflation in October are in line with weaker domestic demand and increasing economic slack. Data points to abating pressure on consumer prices. Results support Mexico central bank forecasts and are likely to increase expectations for policy makers to continue cutting interest rates.
--Felipe Hernandez, Latin America economist at Bloomberg Economics

Meanwhile, Brazil central bank President Roberto Campos Neto told lawmakers on Wednesday that officials will likely cut borrowing costs by 50 basis points for the fourth straight meeting in December. The monetary authority sees inflation running below target through 2021 in all its potential outlooks.

What Our Economist Says

"We expect Brazil inflation to pick up in coming months, driven by the seasonal uptick in food prices and the rebound in electricity fares. Should growth remain subdued and inflation surprise on the downside in November and December, this would raise the odds of smaller, additional rate cuts in the first months of 2020."
--Adriana Dupita, Latin America economist at Bloomberg Economics

On the month, consumer prices in Brazil rose by 0.10% from September led by an increase in transportation costs. In Mexico, inflation accelerated by 0.54% from the month prior as housing prices surged while furniture costs dropped.

--With assistance from Rafael Mendes, Rafael Gayol and Eric Martin.

To contact the reporters on this story: Matthew Malinowski in Brasilia at mmalinowski@bloomberg.net;Mario Sergio Lima in Brasilia Newsroom at mlima11@bloomberg.net

To contact the editor responsible for this story: Walter Brandimarte at wbrandimarte@bloomberg.net

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