May 10, 2018 / 12:52 PM / 12 days ago

UPDATE 1-Brazil April inflation unexpectedly slows, boosts rate cut bets

 (Recasts throughout with details from release, context)
    By Bruno Federowski
    BRASILIA, May 10 (Reuters) - Brazil's inflation rate
unexpectedly slowed in April and kept far below the official
target, suggesting a recent period of currency weakness is
unlikely to keep the central bank from cutting interest rates
next week.
    Consumer prices tracked by the benchmark IPCA index rose
2.76 percent from the year before, government statistics agency
IBGE said on Thursday, a tick below the median 2.82 percent
estimate in a Reuters poll of economists.             
    That is a slower pace of price hikes than the 2.80 percent
rate seen in mid-April, highlighting policymaker's struggles to
pump up inflation amid a slow and uneven economic recovery,
double-digit unemployment rates and widespread idle capacity.
    The central bank targets a year-end inflation rate of 4.5
percent, plus or minus 1.5 percentage point, which it undershot
last year for the first time ever.
    This should keep it on track to cut the benchmark Selic
interest rate by an additional 25 basis points next week to a
record-low 6.25 percent even as the Brazilian real        trades
at multiyear lows.
    Concerns that a widening U.S. fiscal deficit and
accelerating inflation could force the Federal Reserve to
tighten policy faster than expected have driven a worldwide
emerging market rout. A weaker local currency, in turn, could
raise prices of imported goods and drive inflationary pressure
at home.
    Yet analysts say the weak economy is likely to limit
currency pass-through, while underlying inflation trends remain
muted.
    The IPCA index rose 0.22 percent from March, below a median
estimate of 0.28 percent in the Reuters poll.            
    Yields on interest rate futures fell in early Thursday
trading as investors bet the central bank will follow through
with its stated plan to cut interest rates next week, then stand
pat.          
    
Below is the result for each price category: 
                              April        March     
- Food and beverages          0.09         0.07     
- Housing                     0.17         0.19      
- Household articles          0.22         0.08     
- Apparel                     0.62         0.33     
- Transport                   0.00        -0.25     
- Health and personal care    0.91         0.48     
- Personal expenses           0.12         0.05     
- Education                   0.08         0.28     
- Communication              -0.07        -0.33     
- IPCA                        0.22         0.09     

 (Reporting by Bruno Federowski
Editing by Chizu Nomiyama)
  
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