Brazil inflation to rise further on food prices

Brazil's inflation acceleration continued through Q2, as May and June releases suggest, despite the signs that adjustments to regulated goods and services prices are over. 

The bulk of the upside surprise appears to be driven by a higher-than-expected rise in food prices, although inflation also continued to accelerate in the housing and transportation segments, primarily as an effect of adjustments early this year. 

"The inflation is expected to have risen to 9.1% yoy through mid-July although the monthly price increment slowed to 0.45% mom. While housing inflation isset to tick above 18% yoy, food inflation likely entered the double digits after a gap of 21 months", says Societe Generale. 

Higher food price inflation came as a surprise given the decline in global agricultural prices, but probably reflects the serious effects of drought in several regions. Lastly, transportation inflation has averaged at nearly 7% this year compared with an average of 2.2% in this segment since the beginning of 2012.