November 6, 2017 / 4:42 PM / 15 days ago

Brazil inflation likely picks up in October, nears government target

SAO PAULO (Reuters) - Brazil’s consumer price index likely rose in October at its fastest pace in eight months, a Reuters poll showed on Monday, easing concerns that it could end the year below the official target.

FILE PHOTO - Consumers shop for food at a market in Sao Paulo, Brazil January 11, 2017. REUTERS/Paulo Whitaker/File Photo

The official IPCA index BRCPI=ECI likely increased 0.47 percent from September, according to the median of 32 economist forecasts that ranged between 0.30 percent and 0.53 percent. The report is scheduled to be published on Friday at 9:00 a.m. local time (1100 GMT).

Food prices are close to stabilizing after falling for months due to a record harvest, helping curb downward pressures on inflation from a slow economic recovery. Meanwhile, scarce rains drove regulators to hike electricity rates in a bid to offset reduced hydropower generation.

That would lift the annual inflation rate to 2.75 percent in October, the survey showed, below the 3 percent bottom-end of the official target range but far above 18-year lows seen earlier this year. BRCPIY=ECI

An uptick would add evidence to a wider trend, after indices showed producer prices nationwide and prices in Brazil’s largest city of São Paulo accelerating in recent months.

It would also assuage concerns that inflation could end the year below the bank’s target, and could bump up 2018 forecasts, which stand below the 4.5 percent mid-point of the target range.

StarMine’s SmartEstimate, which weighs estimates according to past precision, was slightly above the median forecast for the first time in three months.

Banco J. Safra, the most accurate forecaster of monthly inflation figures in Reuters polls, raised its estimate for 2018 inflation to 4.1 percent from 3.8 percent, due to the outlook for higher-than-expected power tariff hikes.

In a report, Safra economists led by Carlos Kawall wrote that lower-than-average rains in the first quarter of 2018 are likely to force the hand of regulators, driving inflation up by nearly 20 basis points.

That should not prevent the central bank from cutting interest rates to all-time lows in coming months, as it faces subdued wage growth and abundant idle capacity.

A weekly central bank survey of economists put the benchmark Selic interest rate at 7 percent by year-end 2018. The top five most precise estimates, however, suggest the central bank could cut it as low as 6.5 percent in February, after leaving the door open for further reductions.

Reporting by Bruno Federowski, Editing by Rosalba O'Brien

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