Rising food prices may reinforce Brazil's inflation

Brazil's inflation continued to accelerate in May as food prices rose faster than expected and inflation continued to rise in the regulated segment. At this stage of the price cycle, while the adjustments to the regulated prices are over, the upside risk of seasonally volatile factors raising inflation further has risen. 

In June, the IPCA-15 series may post at 8.42% yoy from 8.24% yoy, says Societe Generale. The full-month inflation is unlikely to rise in June. The recent price behavior in the food segment indicates the inflation is likely to accelerate further through September, followed by some moderation towards the end of this year. A more significant moderation will have to wait until next year. 

Societe Generale forecasts, annual inflation is expected at 7.9% and 6.0% respectively for 2015 and 2016, and appear highly optimistic post the May data release.