Inflation in Brazil decelerated at a slightly higher pace last month due to strong base effect in housing segment that led to a sharp drop in regulated inflation. Inflation in Brazil decelerated to 10.8% in March from 14.9% in February. The IPCA headline inflation in March decelerated to 9.39%. IPCA bi-weekly headline inflation is likely to have slowed to 9.22% y/y through mid-April, according to Societe Generale.
Excluding the likelihood of a surprise in food inflation, there seems to be risks on the downside to the forecast of mid-April inflation. In all, the pace of inflation acceleration now appears to be coming together with the inflation forecast of near to 7.2% at the end of 2016, as compared to the present projection of 7.8%, noted Societe Generale.
There is a possibility that when the base effect fades away, the stronger pace of inflation deceleration will also end in 2017. Therefore, the change of Brazil’s inflation converging with the Central Bank of Brazil’s target rate by the end of 2017 is quite low.
“We continue to believe that the fiscal-led pressure on the BRL is likely to keep inflation and expectations higher than the BCB’s target range in 2017”, added Societe Generale.
