Brazil Inflation Exceeds Nearly All Forecasts in February

(Bloomberg) -- Brazil’s inflation exceeded most economist expectations in February but remained comfortably below the official target just as a new central bank president takes the reins of monetary policy.

The IPCA index rose 0.43 percent from January, the national statistics institute reported Tuesday. The data was above all but one forecast from 39 analysts surveyed by Bloomberg. Twelve-month inflation accelerated to 3.89 percent, below the 4.25 percent target for this year.

Brazil Inflation Exceeds Nearly All Forecasts in February

Key Insights

  • This was the final inflation reading before central bank President Roberto Campos Neto’s first monetary policy meeting later this month
  • Brazil’s monetary authority has kept its Selic rate at an historic low of 6.5 percent for nearly a year amid subdued economic recovery
  • Economists and traders are watching closely for signs of continued economic weakness that could invite further monetary easing, or extension of record-low rates

What Bloomberg’s Economist Says

“Another benign inflation reading in February adds to the current picture of tame inflation and subdued growth, conducive to accommodative monetary policy. Even if the headline inflation came in at the top of the forecast range, core readings came in at or below 0.3% MoM. We expect the Monetary Policy Committee (Copom) to maintain the policy rate at 6.5% at next week’s meeting.”
-- Adriana Dupita, Latin America economist
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Market Reaction

  • Swap rates fell as underlying service inflation decelerated in the month, underscoring a weak economic activity.
  • Rates on the contract maturing January 2021, which indicate bets for the benchmark interest rate at the end of 2020, fell 4 basis points to 7.02 percent as of 10:14 a.m local time.

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  • Food and beverage prices, the largest component of the index, rose 0.78 percent and accounted for nearly half of the month’s inflation, the statistics agency said.
    • Slightly higher-than-expected inflation “was driven by a spike in prices in a few food products which should prove temporary,” William Jackson, chief emerging markets economist at Capital Economics, said in a note. “Copom will probably stick to its recent dovish line when it meets next week.”
  • Education prices rose 3.53 percent, the second-largest contributor to the month’s price index, due to tuition adjustments at the start of the school year

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