Brazil's inflation likely to move up in coming years

September data suggest that Brazil's inflation acceleration is over. The full month inflation number eased to 9.49% yoy in September from 9.56% in July and 9.53% in August. In fact, the monthly rate of change in prices was lower in August and September 2015 compared with that in 2014 for the same months. 

A mild yoy inflation deceleration to continue this year (expecting IPCA-15 to come down from 9.57% yoy to 9.54% yoy through mid-October and a slight fall in full month inflation to 9.48%), but a significant fall in inflation will have to wait until January 2016 when the base effect of regulated price adjustments ends, says Societe Generale. 

The bulk of the upside surprises over the past few months has been driven by a higher-thanexpected rise in food prices, although inflation also picked up further in the housing and transportation segments until a couple of months ago. Anticipated inflation moderation on the base effect notwithstanding, given the extent of BRL depreciation, a lagged passthrough impact is expected in several price categories. This is also the key upside risk to the mediumterm inflation outlook. 

"Therefore, despite lowering the 2015 annual inflation forecast to 8.8% from 9.0%, we recently raised our 2016 and 2017 inflation forecasts by 0.1pp and 0.3pp to 6.6% and 5.8%, respectively. Moreover, the country's inflation will likely remain above the BCB's target over the forecast horizon", says ScoGen.