BRASÍLIA: Brazil’s inflation is expected to have decelerated in September with transportation inflation falling and food inflation peaking, said Societe Generale in a research note. The mid-September inflation, IPCA-15 inflation, slowed to 8.78 percent from 8.95 percent in August as food inflation accelerated quite lesser than anticipated and as transportation inflation dropped sharply through mid-September after rising in August.
If food inflation has peaked and the trends in other components have stayed quite unchanged, the full-month IPCA inflation is expected to have decelerated to 8.63 percent year-on-year and 0.22 percent sequentially in September, according to Societe Generale. Furthermore, the effect of lower food inflation might go a long way in moderating the end-of-year inflation expectations.
“We now estimate December inflation at 7.45 percent yoy compared with 7.80 percent post the August inflation release”, noted Societe Generale. However, inflation in certain important categories such as health & personal care and food are yet to slowdown from their recent high levels and continues to be the risks on the upside to near-term inflation outlook.
Given that the Brazilian real is strengthening year-on-year, one might anticipate inflation to fall in the tradable segments in the next few months and, along with the prevailing demand weakness and further slowdown in housing and transportation inflation, the currency might continue to put downward pressure on overall inflation, stated Societe Generale. However, prices of food have been quite difficult to forecast in the past few months.
But the Brazilian central bank’s inflation report implies that the phase of high food inflation this season is almost over and the wholesale markets have already begun showing this trend. Thus, the inflation moderation is expected to continue in 2016 and in 2017, said Societe Generale. However, structurally, the weak fiscal situation contributes to the upside risk to inflation and rates over the medium-to longer-term forecast period. But decline in fiscal situation and consequent pressure on the current might play a significant role in maintaining high inflation even next year, added Societe Generale.
