Brazil mid-November inflation slows more than expected, below target

By Bruno Federowski

BRASILIA (Reuters) – Brazil’s inflation rate has dropped more than expected below the official target’s midpoint, reinforcing a view that the central bank can take its time before hiking interest rates from all-time lows.

Consumer prices tracked by the benchmark IPCA index rose 4.39 percent in the 12 months through mid-November, government statistics agency IBGE said on Friday. Economists polled by Reuters had expected a 4.44 percent increase.

The central bank targets a 4.5 percent year-end rate in 2018 and 4.25 percent in 2019, plus or minus 1.5 percentage points.

Lower fuel, power and healthcare costs accounted for the bulk of the deceleration in inflation, offsetting an increase to food prices. When stripped of volatile components, so-called core inflation remained closer to 3.5 percent.

Economists at Capital Economics said the IBGE release suggests policymakers “won’t be rushed into tightening policy”.

“Overall, there is still little sign of a significant build-up in core price pressures,” they wrote in a note to clients.

The IPCA index rose 0.19 percent from mid-October, IBGE said, below a median estimate of 0.24 percent.

An underwhelming economic recovery has kept unemployment high, curbing wage gains. Meanwhile, the victory of far-right lawmaker Jair Bolsonaro in the presidential election dispelled concerns over a potential currency selloff that could boost inflation.

Subdued price pressures have driven the central bank to keep rates at an all-time low even as inflation accelerated past this year’s target midpoint in recent months.

The central bank last month kept the benchmark Selic rate at 6.50 percent and acknowledged reduced upward risks to inflation. In the minutes of that meeting, which took place just after the election, policymakers said inflation would likely peak in the second quarter of 2019 before easing towards its targets.

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