Brazil's inflation acceleration probably over in this cycle

Releases through mid-September suggest that inflation acceleration is nearly over and we should expect a mild easing in pace in September and Q4. The bulk of the upside surprises over the past few months have been driven by a higher-than-expected rise in food prices, although inflation also picked up further in the housing and transportation segments until a couple of months ago. 

With the BRL depreciating sharply and a lagged impact expected in several price categories, the upside risk to the medium-term inflation outlook has been rising. 

"Despite lowering our 2015 annual inflation forecast to 8.8% from 9.0%, we have raised our 2016 and 2017 inflation forecasts by 0.1pp and 0.3pp to 6.6% and 5.8% respectively", says Societe Generale.

While the effect of slow growth and the labour market deterioration could lead to a faster-than-expected slowdown in inflation next year, both the current trajectory and recent history give little ground for confidence in this regard. Inflation will likely remain above the BCB's target over the forecast horizon.