Brazil: Temporary (non-core) price pressures in March - Rabobank

Rabobank analysts note that the Brazil’s IPCA – official inflation index – posted a gain of 0.75% m/m in March, much above the consensus (0.63%), with food inflation being the main surprising factor, while the year-on-year reading jumped to 4.6% (from 3.9%), topping the BCB’s mid-target but still lying within the tolerance band (4.25% +/- 1.5 p.p.).

Key Quotes

“Despite the jump in headline CPI, underlying inflation trends remain at comfortable (and below-target) levels, around 3.0-3.5%. Diffusion indexes still run shy of the historical average, suggesting that price pressures are still concentrated in few (non-core) items.”

“We see no imminent (economic) threat to the inflation outlook. Especially amid well-anchored expectations, sluggish (well-below potential) activity, and limited FX pressures.”

“We look for IPCA around 0.5% m/m for April (taking the annual reading closer to 5% y/y), following continued hikes in fuel costs. For full-2019, our number remains at 3.8%.”

“In our view, the inflation outlook will continue to warrant the maintenance of the Selic rate at the historical low of 6.5% for some time, with odds much more biased towards cuts (in 19H2) than hikes.”