Brazil mid-July inflation likely outpaces target midpoint

By Bruno Federowski

BRASILIA (Reuters) – Brazil’s inflation rate in mid-July likely rose above the midpoint of the central bank’s target for the first time in more than a year, a Reuters poll of economists showed on Monday.

Still, that is not expected to spur the central bank to raise interest rates any time soon, as inflation spiked due mostly to the temporary effects of a nationwide trucker strike and higher power rates.

Consumer prices tracked by the benchmark IPCA index likely rose 4.64 percent in the 12 months through mid-July, according to the median of 21 forecasts. The central bank is targeting a year-end rate of 4.5 percent in 2018, plus or minus 1.5 percentage points.

That would be the fastest pace for inflation since the middle of March 2017, underscoring the profound impact of product shortages in the wake of truckers’ protests over diesel prices, which blocked major highways in the final weeks of May.

The IPCA index probably rose 0.75 percent from mid-June, based on the median of 21 estimates.

Yet that is unlikely to foster expectations of wider price pressures. When stripped of volatile items such as energy and food prices, 12-month inflation likely remained near 3 percent, economists at UBS estimated.

“The details will likely show well-behaved underlying inflation, confirming that July price pressures are likely temporary,” Rabobank economist Mauricio Oreng wrote in a report.

The survey suggested most economists’ forecasts have already incorporated the impact of the strike, which had pushed up recent inflation readings.

The spread between the largest and smallest estimates for the annual rate was only 0.30 percentage point, far smaller than the previous two polls, suggesting less room for surprises.

A central bank survey of economists conducted last week also pointed in that direction, as the median forecast for 2018 inflation fell for the first time in nine weeks to 4.15 percent.

That should allow the central bank to hold its benchmark Selic interest rate at an all-time low of 6.50 percent, adding support to a weak economy that has so far kept a lid on underlying price pressures.

The bank has stressed that increased uncertainty due to the strike, along with a sharp depreciation of Brazil’s currency, has made it harder to separate short-term shocks from wider changes in the economic outlook.

Still, economists say the weak economy is likely to keep a slumping Brazilian real () from adding much to inflation.

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