August 21, 2018 / 5:35 PM / 3 months ago

Brazil inflation slips as strike-driven pressure all but fades

BRASILIA (Reuters) - Inflation in Brazil likely cooled in mid-August to the slowest monthly pace since a nationwide truckers’ strike in May drove widespread product shortages, a Reuters poll showed, underscoring the central bank’s struggles to reignite price hikes.

A customer looks at the prices at a supermarket in Rio de Janeiro, Brazil July 28, 2018. REUTERS/Sergio Moraes

Consumer prices tracked by the benchmark IPCA index probably rose 0.11 percent in mid-August from the month before, according to the median of 20 estimates.

That would be the lowest reading since the end of March, before truckers protesting high diesel prices blocked major roadways, plugging flows to major industries.

Forecasts were clustered on the lower side, with the most dovish estimate pointing to a paltry 0.05 percent monthly rate. The highest prediction reached 0.22 percent.

“At the end of the day, the fast rates seen in recent months were a temporary spike, not a sustained move up,” SulAmérica Investimentos economist Newton Rosa said.

This would bring the annual inflation rate, scheduled for Thursday at 9:00 a.m. (1200 GMT), to 4.27 percent, based on the median of 19 estimates ranging from 4.22 to 4.39 percent.

But even that figure could be overstating the size of price pressures. Though supply chains seem to have normalized following the end of the late-May strike, power rates remain high due to the effect of scarce rains on hydropower generation.

In contrast, underlying pressures remain largely subdued thanks to an underwhelming economic recovery, which took a further hit from the protests and has kept the unemployment rate stubbornly in double digits.

When stripped of volatile items such as energy costs and food prices, core inflation likely reached 3.52 percent, Haitong economists estimated, lagging behind not only the midpoint of this year’s target of 4.5 percent but even the lower 2021 goal of 3.75 percent.

This should leave the central bank plenty of space to hold interest rates at an all-time low even as the Brazilian real BRBY fell to its weakest in 2-1/2 years, bumping up import costs.

In a report, UBS economists estimated that a 10 percent decline in the Brazilian currency would add around 50 basis points to inflation. The real is down nearly 17 percent so far this year.

Reporting by Bruno Federowski; Editing by David Gregorio

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