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Brazil Inflation Slows Less Than Expected
Brazil Inflation Slows Less Than Expected

Brazil Inflation Slows Less Than Expected

Brazil Inflation Slows Less Than Expected

Brazil’s inflation rate slowed less than expected in September, suggesting the pace of price hikes may have bottomed out near 18-year lows.

Consumer prices as measured by the IPCA index rose 2.54% from the year before, down from 2.56% through mid-September, government statistics agency IBGE said, Reuters reported.

The reading came in above the 2.47% increase predicted by economists surveyed by Reuters, only the second in the last nine bi-weekly releases to do so. It surprised even the most accurate forecaster, the Rosenberg Associados consultancy, which had forecast a 2.45% rate.

Higher fuel prices accounted for most of the increase, with gasoline rates rising an average 2.22% from August. State-controlled oil company Petroleo Brasileiro SA repeatedly hiked prices throughout the month after recent hurricanes in the United States shut down oil terminals across the northern Caribbean.

Nevertheless, the annual rate remained far below the bottom-end of the central bank’s target range, of 4.5% plus or minus 1.5 percentage point, supporting bets that it may undershoot the goal for the first time ever this year.

An unexpectedly strong agricultural harvest has driven food prices sharply lower, helping to pull down inflation from double digits as Latin America’s largest economy exited its deepest recession in a century.

That has allowed the central bank to cut interest rates by 600 basis points since October to 8.25%. The bank is expected to reduce the benchmark Selic rate further this month, albeit at a slower pace. Some economists expect interest rates to fall as low as 6.5% by the end of the year, an all-time low.

Still, the September inflation figures showed a slower decline in food prices than in the previous month, a potential sign of a change in trend.

“While this is the most volatile component of the IPCA basket, most of the evidence suggests it is now close to bottoming out,” Capital Economics economist Neil Shearing wrote in a report. “Our view is that the big falls in inflation are now behind us and the annual IPCA rate will hover around 2.5-2.6% y/y over the rest of this year.”

The IPCA index rose 0.16% from the month before, up from a 0.11% increase in mid-September and above market estimates of a 0.09% rise. Economists expect an annual inflation rate of 2.97% in 2017, according to a central bank weekly survey.

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