March 9, 2018 / 1:22 PM / 5 months ago

UPDATE 1-Brazil inflation slows in February, boosting rate cut bets

 (Adds details, context)
    BRASILIA, March 9 (Reuters) - Brazil's inflation rate slowed
for a second month in February, the latest in a string of weak
price figures that has boosted bets on an interest rate cut this
month.
    Consumer prices tracked by the benchmark IPCA index rose
2.84 percent in the twelve months through February, in line with
the median 2.85 percent forecast in a Reuters survey of
economists.             
    That keeps the index far below the bottom end of the
official target range, of 4.5 percent plus or minus 1.5
percentage points, a worrying sign for the central bank after it
failed to lift inflation to its goal last year for the first
time.
    Food prices fell in the month, dashing hopes that a
months-long period of food deflation driven by a strong harvest
had come to an end. Meanwhile, school tuition fees, which tend
to rise in February, increased less than in same period of 2017.
    But underlying inflation trends also remained muted, weighed
down by double-digit unemployment rates, idle capacity among
companies and a slower-than-expected economic recovery.
            
    In a report, Goldman Sachs estimated that so-called core
inflation, which strips the index of volatile prices, slowed to
3.24 percent from 3.34 percent the month before. Price increases
were also less widespread than in the previous month, they said.
    The IPCA rose 0.32 percent from January, matching the
consensus estimate in the Reuters poll, the lowest reading for
February since 2000.            
    Recent figures showing slow inflation "have increased
significantly the probability of a 25 basis-point rate cut at
the March 21 Copom meeting," Goldman Sachs economist Alberto
Ramos wrote in the report.
    At its last policy meeting, the central bank's Copom
rate-setting committee had strongly hinted that it could end the
deepest easing cycle in a decade, which brought the benchmark
Selic rate to an all-time low of 6.75 percent.             
    But central bank chief Ilan Goldfajn acknowledged this week
that the recent string of low inflation prints caught
policymakers by surprise, driving investors to increase bets in
a final rate cut this month.             
    Yields on interest rate futures           indicated an 80
percent likelihood of a 25 basis-point rate cut in March and a
20 percent chance that the bank will stand pat.           
    
Below is the result for each price category: 
                              February     January   
- Food and beverages         -0.33         0.74     
- Housing                     0.22        -0.85      
- Household articles          0.03         0.14     
- Apparel                    -0.38        -0.98     
- Transport                   0.74         1.10     
- Health and personal care    0.38         0.42     
- Personal expenses           0.17         0.22     
- Education                   3.89         0.22     
- Communication               0.05         0.11     
- IPCA                        0.32         0.29

 (Reporting by Bruno Federowski
Editing by Bernadette Baum)
  
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