May 23, 2018 / 12:47 PM / 3 months ago

UPDATE 1-Brazil inflation slows unexpectedly in mid-May

 (Recasts throughout with details from release, context)
    By Bruno Federowski
    BRASILIA, May 23 (Reuters) - Inflation in Brazil
unexpectedly slowed in mid-May, highlighting how a weak economy
is hampering central bank efforts to lift price increases back
to its target range.
    Consumer prices tracked by the benchmark IPCA index rose
2.70 percent in the 12 months through mid-May, government
statistics agency IBGE said, below the median 2.81 percent
forecast in a Reuters poll of economists.             
    The result undershot even the lowest estimate in the poll,
Standard Chartered's forecast of 2.75 percent, and held well
below the bottom end of this year's central bank target range of
4.5 percent, plus or minus 1.5 percentage points.
    The numbers are the latest in a string of
weaker-than-expected inflation figures since the start of 2018.
    Double-digit unemployment rates and widespread idle capacity
have kept a lid on price hikes as Latin America's largest
economy recovers slowly from its deepest recession in decades,
despite record-low interest rates.
    While a selloff in the Brazilian real        to a two-year
low could generate inflationary pressures by boosting import
prices, analysts say the weak economy is likely to curb the
pass-through effect.
    The IPCA index rose 0.14 percent from mid-April, IBGE said,
compared to a median 0.25 percent estimate.             
    Inflation had reached 2.76 percent at the end of April and
2.80 percent in mid-April.
    The central bank last week defied widespread expectations it
would cut interest rates in a decision that was widely seen as a
response to a weaker currency. The minutes from its meeting
showed policymakers weighed a rate cut before ultimately
deciding to hold borrowing costs.                          
    "The central bank made it clear at this month's meeting that
the easing cycle is now at an end," said economists at Capital
Economics in a report. "Inflation shouldn't be a major headache
... instead, the next move in rates is likely to hinge on what
happens around October's presidential election."

 (Reporting by Bruno Federowski, Editing by Rosalba O'Brien)
  
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