Brazil IPCA on its way to the peak

Brazil's June inflation increased at 0.79% m/m, and compatible with an annual print of 8.89% y/y. Year-to-date, inflation has accumulated 6.2%. During June, the largest pressure came from the personal expenditures group, due to the lottery games adjustment, followed by the food group, which was pressured by dairy, meats and out-of-home food.

"It is believed, IPCA forecast to peak at 9.32% y/y during the next two months, then to move down softly to 8.9% by the end of the year. Risks to the forecast are if wages dynamics continue to deteriorate in a way that would affect services inflation this year, although It is expected quite unlikely in the short term" notes Barclays

Today's print does not change the view regarding the central bank reaction. It is believed central bank will solely focus on the inflation outlook, and as it incorporates the unusually high inflation prints for the period (mid-year inflation usually is lower due to seasonal food prices being lower), It is believed models to show a convergence of inflation to the mid-point of the target by the July 29 meeting. It is expected a 50bp hike by the end of the month, says Barclays.