BRASÍLIA: Brazil’s consumer inflation slowed more than expected in March as a prolonged recession curbed demand for goods and services in Latin America’s largest economy. The benchmark IPCA consumer price index rose 0.43 percent from the previous month, following a 0.9 percent jump in February. That was lower than the median forecast for a 0.46 percent increase from 41 economists surveyed by Bloomberg. Twelve-month inflation slowed to single-digits, reaching 9.39 percent.
Inflation is slowing as the impact of government-regulated price adjustments fades and the economy sinks in a two-year recession. A stronger currency is also likely to help curb consumer price increases going forward. That doesn’t mean Brazil’s central bank will lower the benchmark Selic anytime soon: even as the market prices in reductions to the Selic and economists likewise forecast rate cuts, policy makers have said there isn’t room for looser policy.
Housing prices fell 0.64 percent as electricity prices dropped, contributing the most to the slowdown in March inflation. Education prices rose 0.63 percent after a 5.9 percent increase in February. Food and beverage prices rose 1.24 percent, accounting for almost three-quarters of monthly inflation.
Swap rates on the contract due January 2017 fell 7 basis points to 13.81 percent in early-morning trading. The real strengthened 0.8 percent to 3.66 per U.S. dollar.
Brazil’s central bank cannot consider monetary policy flexibility, and will act to bring inflation to the 4.5 percent target in 2017, central bank President Alexandre Tombini said at an event in Sao Paulo on Thursday. The balance of risks for inflation remains challenging even as economic downturn, higher joblessness and a stronger currency help slow consumer price increases, Tombini said.
The monetary authority targets inflation of 4.5 percent, plus or minus two percentage points. It hasn’t fallen within that range since the end of 2014, and was last below the target in mid-2010. The central bank’s benchmark interest rate of 14.25 percent is the highest since 2006.
The gap between inflation and economic growth has yawned since 2014, with GDP in 2015 falling to a 3.85 percent recession — its worst performance in 25 years. Latin America’s largest economy is on track to shrink 3.6 percent this year, according to economists surveyed by Bloomberg.
