Brazil’s mid-October inflation likely to have moderated

Moderation in Brazil’s inflation appears set to continue, given that food price risk is apparently ebbing. The full-month IPCA inflation details of September were quite encouraging as compared to the headline figures as food prices recorded their first significantly monthly drop in almost two years. This assisted in moderating headline inflation to 8.48 percent year-on-year and also lowered the upside risk to the inflation outlook, noted Societe Generale. Annual inflation also dropped in all the major categories with exception of communication.

“For the IPCA-15 series, we expect inflation to moderate to 8.29 percent yoy in October”, added Societe Generale.

Food price inflation has not subsided entirely, and the structural challenges, including low fiscal balance and high wages, to the medium- and longer-term inflation path continue to be strong. Further phases of upside surprises in the coming few quarters are likely, especially when the base effects in regulated prices ebb, stated Societe Generale.

But, with the Brazilian real appreciating annually, inflation is expected to drop in the tradable segments in the months ahead, with the prevailing demand weakness and additional deceleration in housing and transportation inflation, the real might continue to put downward pressure on the overall inflation.

“We now expect inflation to moderate to 7 percent towards year-end and to 5.6 percent yoy towards the end of 2017”, said Societe Generale.