Brazil inflation rate up in mid-May, holds below target range

BRASILIA (Reuters) - Brazil’s inflation rate likely accelerated slightly in mid-May but held below the official target range as a slow economic recovery continued to hamper the central bank’s efforts to reignite price hikes, a Reuters poll of economists showed.

Consumer prices tracked by the benchmark IPCA index probably rose 2.81 percent from the year before, according to the median of 22 estimates compiled by Reuters. BRIPCY=ECI

That is slightly higher than the 2.76 percent rate seen at the end of April, but nearly matches the mid-April 2.80 percent reading.

Inflation has held below the bottom end of this year’s official target range, of 4.5 percent plus or minus 1.5 percentage points, for nearly all of 2018. None of the respondents forecast it would rise back to the range in mid-May, with the highest estimate at 2.90 percent.

The findings should increase investors’ focus on the minutes of the bank’s last policy meeting, set to be released on Tuesday, in which policymakers unexpectedly withheld from cutting interest rates.

In a statement, the bank attributed the decision to a shift in the "balance of risks for prospective inflation", which was widely interpreted as a reference to a recent currency selloff that drove the Brazilian real BRBY to multiyear lows.

A weaker currency could bump up inflation by raising import prices, though a weak economy is likely to dampen that effect. Brazil’s unemployment rate has held at double digits while companies continue to grapple with widespread idle capacity.

“We see inflation still at comfortable levels at least until the end of this year, despite some weakness” in the Brazilian real, JPMorgan economists wrote in a client note.

The IPCA index likely rose 0.25 percent from mid-April, according to the median of 23 estimates ranging from 0.20 to 0.33 percent. BRIPCA=ECI

With inflation unlikely to pick up steam anytime soon, the bank is likely to turn its focus to its 2019 inflation target, set at a lower 4.25 percent rate. The bank said its decision to leave rates unchanged was consistent with inflation converging to the 2018 target and, “to a greater extent, 2019.”

Yet a weekly central bank survey put inflation at 4.01 percent at the end of 2019, still below the midpoint of that year’s goal.

Reporting by Bruno Federowski; Editing by Chizu Nomiyama