Brazilian inflation likely to have slowed to a 4-year low level in January

Brazil’s inflation is expected to have decelerated to a four-year low in January. Mid-January inflation, ICPA-15, fell to 5.94 percent year-on-year. Like in the last couple of quarters, food was mainly the factor for decline in inflation followed by housing. Out of nine major spending categories, eight of them witnessed a slowdown in inflation through mid-January and the widespread trend implies that inflation will decelerate further, noted Societe Generale in a research report.

Excluding transportation, most other segments might continue to see downward inflation pressure given the demand weakness and appreciating Brazilian real. According to Societe Generale, the IPCA monthly series inflation is expected to have dropped to 5.49 percent year-on-year in January, the lowest since the fourth quarter of 2012.

The rate of inflation deceleration is expected to ease, especially from the second quarter of this year as the housing inflation would stabilize. At certain point, the pressure on the fiscal side might also contribute to the upside risk by exerting pressure on the Brazilian real, added Societe Generale. However, given the recent path of macro factors and components, moderation in inflation is expected to continue in 2017 and 2018, but at a slower rate.

The IGP-DI index of inflation for the month of January was released today. The index dropped to 0.43 percent from 0.83 percent. Market forecast was for the index to drop to 0.50 percent.