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Brazilian mid-January inflation likely to have moderated further

The Brazilian mid-January inflation is likely to have moderated further; however, the pace is expected to slow in 2017. The 2016 year-end inflation had come in at 6.3 percent year-on-year, which is below the Brazilian central bank’s target ceiling of 6.5 percent. Furthermore, given the outlook on food prices, the overall growth weakness and the stable-to-appreciating Brazilian real, it makes sense to believe that inflation deceleration would carry on in 2017, said Societe Generale in a research report.

The slowdown in inflation in the last three months has been widespread with the year-on-year and sequential inflation declining in each segment except in personal expenses. However, on the upside, the decision of Petrobras to increase gas prices and the end of the base effect in the housing segment signifies that the price adjustment in 2017 would be considerably slower than in 2016, noted Societe Generale. At certain point, the ongoing pressure on the fiscal side might add to the upside risk by exerting pressure on the Brazilian real.

“Nevertheless, given the recent trajectory of components, we estimate January IPCA-15 inflation at 6.18 percent yoy”, added Societe Generale.

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