BRL likely to create upward pressure on Brazil's inflation

Brazil recorded 8.5% year on year inflation in June. Due to the inflation rate acclerate, the averate inflation projection for 2015 has been revied up. Societe Generale estimates the economy is likely to post 9.0% in 2015.

The key factor that could increase upside risk to the medium-term inflation outlook, is the possibility of further depreciation of the BRL. The fact that the macro economy is in considerably weak shape and the twin deficit (current account and the fiscal) could remain high this year makes the BRL that much more vulnerable, particularly once the Fed begins rate tightening, says SocGen.