Brazil mid-December inflation slows below 4 percent

By Bruno Federowski

BRASILIA (Reuters) – Brazil’s inflation rate likely dipped below 4 percent in mid-December as consumer prices fell, a Reuters poll showed, reinforcing expectations that the central bank will hold interest rates at a record low for a long time.

The benchmark IPCA index probably rose 3.90 percent in the 12 months through mid-December, according to the median of 19 forecasts, compared with 4.09 percent by the end of November and 4.39 percent in mid-November. It would be the lowest reading since mid-June.

This would all but guarantee that inflation will end the year below the central bank’s target of 4.5 percent, plus or minus 1.5 percentage points, while greatly increasing the likelihood that it also undershoots next year’s 4.25 percent midpoint.

It would also back the bank’s recent communication, which has led several economists to bet that it could refrain from raising interest rates for as long as the full year of 2018.

The bank last week kept the benchmark Selic rate at 6.50 percent and acknowledged that downward risks to inflation have increased, suggesting it could wait longer than expected before hiking.

Many economists have postponed their forecasts for when rates will rise to 2020, betting that an underwhelming economic recovery will keep a lid on wage gains. Some have even begun discussing the possibility that the next rate move is not up but down.

The IPCA index, scheduled for Friday at 9 a.m. local time (1100 GMT), probably fell 0.12 percent from mid-November, based on the median of 20 estimates, also dragged down by non-recurring factors such as lower power rates and discounts associated with the Black Friday shopping day.

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