May 7, 2019 / 3:21 PM / a month ago

Brazil inflation to top 5 percent for first time in over two years: Reuters poll

FILE PHOTO: Food is displayed at a street market in Rio de Janeiro, Brazil September 4, 2018. REUTERS/Pilar Olivares

BRASILIA (Reuters) - Annual inflation in Brazil is expected to have topped 5 percent in March for the first time in over two years, according to a Reuters poll of economists, a potential dilemma for policymakers hoping it falls back to target sooner rather than later.

The median estimate from 19 economists is for annual consumer price inflation to increase to 5.01 percent in April from 4.58 percent in March, driven by rising transport costs, healthcare costs and food prices.

That would be the highest inflation since January 2017, with the monthly rise seen easing only marginally to 0.63 percent from 0.67 percent in March, also according to the median estimate of 19 economists.

It would also show inflation moving further above the central bank’s target for this year of 4.25 percent. Central bankers have said they expect inflation to peak around April-May before drifting back towards target later in the year.

That does not appear to be happening, something that will surely be analyzed and discussed in depth by the central bank’s policymaking committee, known as Copom, which meets this week.

“While the recent inflation data point to temporary pressures from volatile items such as food and energy, inflation expectations remain well-anchored ... and economic activity has been quite weak,” wrote Mauricio Oreng, Senior Brazil Strategist at Rabobank, in a client note.

Oreng and others note that the economy’s underperformance should exert downward pressure on inflation. Another round of gloomy survey data on Monday was the latest piece of evidence that growth is failing to pick up any momentum and optimism continues to fade.

But the inflation outlook is complicated by Brazil’s currency, the real, which is down around 8 percent in the last three months. It has hovered around 4.00 per dollar for many weeks, and investors have downgraded their outlook for the remainder of the year.

Reporting by Jamie McGeever; Additional reporting by Gabriel Burin in Buenos Aires; Editing by Susan Thomas

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