Brazil Inflation Preview Exceeds All Calls, May Delay Rate Cut

Wholesale, consumer and construction prices as measured by the IGP-M index in the end of May jumped more than forecast by all economists, suggesting new central bank chief Ilan Goldfajn may need to wait longer before he begins cutting interest rates. Swap rates rose.

The index as calculated by Fundacao Getulio Vargas rose 1.12 percent between May 21-31, almost double the median 0.67 percent forecast from 10 analysts surveyed by Bloomberg. It also marked a steep acceleration from the 0.59 percent reading in the same period of the previous month. The reading is a preview for the monthly IGP-M index released at the end of the month.

The IGP-M was the latest in a stream of inflation data that has come in above estimates over the past few weeks, underscoring the challenges for Goldfajn, who will take over as central bank chief on Thursday. The central bank unanimously held rates at their highest level since 2006 on Wednesday, and the market is betting they could start a monetary easing cycle as early as next month.

The data will make the central bank more cautious about reducing interest rates, and may push the start of its rate-cutting cycle until October, according to Pedro Lutz Ramos, economist at Banco Cooperativo Sicredi.

Swap rates on the contract due January 2017 rose seven basis points to 13.655 at 9:52 a.m. local time. Rates on contracts due in July and September also rose.

Producer prices rose 1.55 percent in the last ten days of May while consumer prices climbed 0.35 percent.

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