Consumer prices in Latin America’s largest economy rose 0.31% in the month to mid-January, IBGE said, down from 0.40% in the previous month and below all estimates in a Reuters poll of economists, whose median forecast was for a 0.47% increase.
Annual inflation reached 4.47%, sliding from 4.72% in the previous reading and also below the 4.63% expected by market participants.
The fresh figures come as Brazil’s central bank is expected to lower its benchmark interest rate by 50 basis points for the fifth time in a row to 11.25% when its board meets on Jan. 30 to 31, although some do not see larger cuts as out of the question.
“We expect a 50-basis-point rate cut next week, but can’t rule out bolder action as higher real rates are a threat to the (economic) recovery,” Pantheon Macroeconomics’ chief Latin America economist Andres Abadia said.
Inflation in January was driven by higher food and beverage costs, IBGE said in a report, but a drop in transportation prices partially offset those increases.
The statistics agency highlighted that airfares, which the government last month dubbed its biggest concern regarding inflation after a major jump in prices recently, finally decreased.
President Luiz Inacio Lula da Silva is on a personal campaign to make air travel more affordable, with his government set to launch a fund to help finance airline operations and looking at ways to reduce jet fuel prices.
But as the inflation decline in early January was driven by a particularly volatile item such as airfares, Capital Economics’ chief emerging markets economist William Jackson said he doubts policymakers will open the door to larger rate cuts.
“Another 50-basis-point cut in the Selic rate at next week’s meeting is nailed on,” Jackson said. “And we suspect that the policymakers will retain their guidance for 50-basis-point cuts at the next few meetings too.”
Source: Economy - investing.com
