Brazil Mid-January Inflation Slows in Line With Expectations

  • Data follows surprising central bank decision to hold rates
  • Inflation may be close to peaking, says Capital Economics

Brazil’s inflation slowed in line with analysts’ expectations in the month through mid-January after the central bank resisted calls to raise interest rates this week.

Inflation as measured by the IPCA-15 index decelerated to 0.92 percent from 1.18 percent a month earlier, the national statistics agency said on its website Friday. That is equal to the median estimate from 45 analysts surveyed by Bloomberg. Annual inflation quickened to 10.74 percent, the highest level in more than 12 years, from 10.71 percent.

Double-digit inflation failed to convince central bank directors of the need to raise interest rates at their monetary policy meeting Wednesday. Their decision took into consideration the fact Latin America’s largest economy is careening toward its second straight year of recession, after the economy shed more than 1 million jobs in 2015.

The latest inflation print is “likely to give policy makers at the central bank another reason to hold off raising interest rates further in the near future,” Edward Glossop, an emerging markets economist with London-based Capital Economics, said in a note to clients. “We think inflation may now be close to peaking.”

Swap rates on the contract due in January 2017 fell 5 basis points to 14.83 percent at 10:35 a.m. local time. The real gained 0.9 percent to 4.1182 per U.S. dollar.

Prices for food and beverages rose 1.67 percent, slower than the 2.02 percent increase in mid-December, the national statistics agency said. Personal expenses rose 1 percent after a 0.56 percent gain in the previous month.

Inflation is running at more than double policy makers’ target. Their decision to keep the Selic rate unchanged Wednesday surprised most economists surveyed by Bloomberg. At 14.25 percent, the Selic is at a nine-year high.

As recently as Monday, both traders and economists were anticipating a half-point increase in the benchmark rate. Those expectations began to change after central bank President Alexandre Tombini released, during the bank’s quiet period, a statement saying bank directors would take into account growth projections for Brazil recently released by the International Monetary Fund. The new forecasts were considerably more pessimistic than those published in October.

Economists surveyed by the central bank have increased their inflation forecast for 2016 to 7 percent -- above even the ceiling of the central bank’s tolerance band.

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