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UPDATE 1-Brazil's inflation rate hits 5-month high but lags forecasts
November 23, 2017 / 12:21 PM / 21 days ago

UPDATE 1-Brazil's inflation rate hits 5-month high but lags forecasts

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    By Bruno Federowski
    SAO PAULO, Nov 23 (Reuters) - Brazil's inflation rate
accelerated to a five-month high in mid-November as power costs
surged, though it undershot analyst expectations and remained a
tad below the official target range.
    Consumer prices as measured by the IPCA index rose 2.77
percent in the twelve months through mid-November, data from
state statistics agency IBGE showed on Thursday, up from 2.70
percent at the end of October.             
    An increase in electricity tariffs accounted for half of the
uptick as a period of scarce rains hampered hydropower
generation, putting regulators on alert.
    That helped to lift the official inflation rate further away
from 18-year lows seen in August, when an unexpectedly strong
agricultural harvest drove the inflation rate below the
bottom-end of the government's target range of 4.5 percent plus
or minus 1.5 percentage points.
    Still, food prices continued to fall in November, keeping
the IPCA rate below the median 2.84 percent median forecast in a
Reuters poll of economists.
    The index rose 0.32 percent from the month before, below
expectations of 0.40 percent, IBGE said.             
    Most economists expect food deflation to ease in coming
months, allowing the central bank to meet the year-end target.
It has never undershot it in two decades of
inflation-targetting.
    That is likely to give the central bank wide space to cut
interest rates to an all-time low at its next meeting in the
first week of December and potentially signal further easing up
ahead.
    Yields on interest rate future contracts slipped in early
trading as traders increased bets on a further rate cut in
February 2018.          
    The central bank has cut the benchmark Selic rate by 675
basis points since October 2016 to support a nascent economic
recovery from the deepest recession in a century.
    Though economic growth has shown signs of accelerating,
economists say that is unlikely to stoke inflation as firms
grapple with idle capacity and with employment gains
concentrated on off-the-books jobs.

 (Reporting by Bruno Federowski; editing by Diane Craft)
  

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