Brazil Inflation May Reach 18-Year Low

Growing economic momentum in Brazil is not expected to have kept inflation from hitting a new 18-year low in August, a Reuters poll of economists showed.

Consumer price index probably rose 2.60% in the 12 months through August, according to the median of 23 forecasts in the poll, compared with an increase of 2.71% in the 12 months through July.

The reading, well below the bottom of the central bank’s target range, should pave the way for another interest rate cut on Wednesday, a move that would just hours after the latest inflation figures are released. The central bank has pushed through a series of deep rate cuts since October.

Lower borrowing costs should continue to boost recent signs of economic improvement in Latin America’s largest economy, such as a pickup in consumer spending and falling unemployment.

Second-quarter economic growth beat market expectations, sparking some optimism among economists who for months had forecast a sluggish recovery from the country’s deepest recession in a century. Still, economists said price hikes are unlikely to accelerate anytime soon.

Services inflation, which closely tracks the pace of economic activity, is likely to remain muted in August, according to forecasts, while an abundant harvest should curb food inflation.

“Inflation will continue its long-lasting decline course, driven mainly by ample slack in the economy and the favorable food price shock,” wrote economists at Itau Unibanco.

The IPCA index is expected to rise 0.31% in August from the previous month, due mainly to a mid-July fuel tax hike. That compares to a 0.24% increase in the previous month.

Estimates for the annual inflation figure ranged between 2.49% and 2.74%, while forecasts for the monthly figure varied from 0.22% to 0.47%, according to the poll.