Brazil’s Inflation Slows in Mid-August on Food Price Relief

  • Food prices rise 0.8% compared to 1.5% in the previous month
  • Swap rates rise as IPCA-15 shows inflation more widespread

Brazil’s consumer inflation decelerated broadly in line with expectations in the month through mid-August as the impact of recent food price shocks faded.

Inflation as measured by the IPCA-15 index came in at 0.45 percent compared to 0.54 percent in the previous month, the national statistics agency said Wednesday. The median forecast from 42 economists surveyed by Bloomberg was for a 0.46 percent increase in prices. Twelve-month inflation quickened to 8.95 percent.

A number of food price shocks caused by variable weather has hindered an expected slowdown in inflation, which still runs at nearly twice the official target of 4.5 percent. That impact started to ease as prices for food and beverages rose 0.78 percent by mid-August, compared to 1.45 percent in the previous month.

“Food price inflation moderated at the margin but was still the main driver and contributor to headline inflation in August,” Goldman Sachs senior economist Alberto Ramos wrote in a research note. “We expect part of the recent surge in food prices to mean-revert in coming months.”

Rate cut expectations for this year have been substantially reduced as inflation continues apace. Economists now forecast the central bank will cut the benchmark Selic rate, currently at a 10-year high of 14.25 percent, by only 50 basis points in 2016, compared to a 150 basis-point reduction seen three months ago.

Local swap rates rose as inflation, although in line with expectations, was more widespread among all price components of the IPCA-15, with its diffusion index rising to 63.3 percent from 57.8 percent according to Ibiuna Investimentos. Yields paid on the interest-rate futures contracts for January 2018 rose 4 basis points to 12.73 percent.

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