Brazil inflation seem to decline in near term as food prices fall

Brazil’s inflation is expected to slowdown in the coming months primarily due to falling food prices, after it rebounded in May. The inflation has remained under pressure since the beginning of 2016. but the ongoing recession and global economic slowdown are most likely to weigh on domestic prices, reports said.

Inflation reached 9.32 percent y/y and 0.78 percent m/m in May, somewhat higher than expected. As in April, pressures from food and mainly regulated prices were the main drivers of higher-than-expected inflation. Food inflation reached 12.7 percent y/y in May, less than in April but more than expected, mainly due to supply issues.

Meanwhile, administered prices increased 10.9 percent y/y in May, in comparison to 10.7 percent y/y in April. In monthly terms, they increased 1.4 percent m/m compared to 0.7 percent in April and 1.22 percent m/m in May 2015, mainly due to adjustments in the tariffs of water, sewage and electricity as well as in medicine prices.

"However, after the recent upward surprises in inflation, we add an upward bias to these forecasts," BBVA Research said in a note.

Moreover, prospects of falling inflation cannot re-enforce the possibility of a monetary easing cycle by the European Central Bank in the near term.