December 9, 2016 / 12:03 PM / 8 months ago

UPDATE 2-Brazil's inflation target within reach after November surprise

(Adds comments, details)
    By Silvio Cascione and Rodrigo Viga Gaier
    BRASILIA/RIO DE JANEIRO, Dec 9 (Reuters) - Brazil's
inflation rate eased much more than expected in November,
putting a long-missed official target within reach this year and
clearing the path for a more aggressive cycle of interest rate
cuts by the central bank.
    Consumer prices as measured by the benchmark IPCA index rose
6.99 percent in the 12 months through November, down from an
increase of 7.87 percent in the previous month and below the
market consensus for a 7.08 percent increase, government
statistics agency IBGE said on Friday. 
    The deceleration resulted in part from falling food prices
and weaker-than-expected economic activity.  
    Prices rose 0.18 percent in November from October, below all
29 market forecasts in a Reuters poll. It was the lowest reading
for November since 1998.
    The government's official inflation target is 4.5 percent,
with a tolerance margin of plus or minus two percentage points. 
    Although the inflation rate remains high, the November
surprise raises the possibility that it will hit the
government's target ceiling before 2017, something unthinkable
to economists just a few months ago.
    "There is a real chance that the IPCA will close this year
within the official target range, given that the price increase
in December 2015 was much higher than the current inflation
pattern," IBGE economist Eulina dos Santos said.
    But Tendências Consultoria economist Marcio Milan said a
recent increase in fuel prices could keep inflation above the
target for at least one more month. 
    Yields on interest rate futures fell as traders added bets
that the central bank would cut its benchmark rate by 50 basis
points to 13.25 percent at its next meeting in January.
Economists see lower inflation and interest rates as crucial for
Brazil to emerge from its worst recession in at least eight
decades.
    Brazil missed its inflation target by a wide margin last
year, when the pace surpassed 10 percent. The central bank and
market economists now expect it to fall to around 4.5 percent in
2017, allowing policymakers to cut interest rates to near 10
percent over the next year.
            
    Below is the result for each price category: 
        
                                 November     October
 - Food and beverages               -0.20       -0.05
 - Housing                           0.30        0.42
 - Household articles               -0.16       -0.13
 - Apparel                           0.20        0.45
 - Transport                         0.28        0.75
 - Health and personal care          0.57        0.43
 - Personal expenses                 0.47        0.01
 - Education                         0.06        0.02
 - Communication                     0.27        0.07
                                                     
 - IPCA                              0.18        0.26
 
    
 (Reporting by Silvio Cascione; Editing by Lisa Von Ahn)

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