Brazil’s annual inflation rate tumbled more than expected in May to the lowest in 10 years, data showed, underscoring bets on new interest rate cuts and a lower inflation target.
Consumer prices as measured by the benchmark IPCA index rose 3.60% in the 12 months through May, down from an increase of 4.08% in the previous month and below all forecasts in a Reuters poll, statistics agency IBGE said.
This is the lowest inflation rate for Brazil since May 2007, in stark contrast with the double-digit rates seen before a deep, two-year-long recession weighed on prices.
On a monthly basis, inflation rose to 0.31% in May from April, up from an increase of 0.14% in the previous month, according to IBGE. It was the lowest monthly rate for May since 2007.
The official inflation target is 4.5%. Most economists expect the government to reduce that goal later this month for the first time in more than a decade to bring it closer to the target of other emerging economies.
Falling inflation is also expected to leave the central bank comfortable to cut rates from the current 10.25% to around 8.5% by December, according to a weekly survey of economists. Yields on rate futures were mostly down on Friday.
The central bank has already lowered the benchmark Selic rate by 400 basis points since October, but signaled it could slow down the pace of easing as a political crisis threatened to derail President Michel Temer’s agenda to cut public spending.
