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Brazil Inflation Exceeds Forecast

Brazil Inflation Exceeds ForecastBrazil Inflation Exceeds Forecast

Brazil economists raised their forecast for the benchmark interest rate at the year-end following inflation surprises that reinforced the challenge facing Brazil’s prospective central bank chief to rein in prices.

Economists’ median forecast for the Selic (the Brazilian Central Bank’s system for performing open market operations in execution of monetary policy) at year-end rose to 12.88% from 12.75% the prior week, marking the first increase in the weekly Focus survey conducted on May 27. They also raised their 2016 inflation forecast to 7.06%, marking the second-straight increase, Bloomberg reported.

With inflation still more than double the official target, Brazil’s Senate will this week evaluate Ilan Goldfajn, who has been tapped to helm the central bank. Policymakers held rates unchanged last month and the market bets that, under Goldfajn, they could begin lowering rates as soon as July, according to data compiled by Bloomberg. Recent inflation data may dim that prospect.

Brazil’s broadest measure of inflation accelerated in May more than all economists estimated, according to data that education and research institute Getulio Vargas Foundation released on its website Monday. The data follows April and mid-May inflation readings as measured by the IPCA and IPCA-15 indexes that also exceeded all estimates.

Wholesale, consumer and construction prices, as measured by the FGV’s IGP-M index, rose 0.82% in May after a 0.33% advance in April. That result was above all estimates from 19 economists surveyed by Bloomberg, whose median forecast was for a 0.74% increase. The index, which is weighted 60% in wholesale prices, rose 11.09% in the past 12 months.

Brazil’s Senate decided to push up Goldfajn’s hearing based on a request from current bank president Alexandre Tombini, who said he prefers not to preside over the June 7-8 monetary policy meeting. The senate will hear Goldfajn on June 1.

While Goldfajn may face more inflation stickiness than previously anticipated, economists see inflation slowing to within the target range and more reductions to the Selic in 2017. They lowered their year-end 2017 Selic forecast to 11.25%, from 11.38% the prior week.

Financialtribune.com