Brazil's inflation escalating upside risk

Brazil's inflation data for May is scheduled to release today.

May inflation data and the IPCA-15 series suggests that Brazil's inflation acceleration continued in Q2 despite the likelihood that adjustments to the prices of regulated goods and services are nearly over. The bulk of the upside surprise in May and June appears to be driven by a higher-than-expected rise in food prices, although inflation also continued to accelerate in the housing and transportation segments. 

According to Societe Generale, inflation to have risen above 9.0% yoy (0.90% mom) in June - the highest since 2003, whereas, housing inflation will likely tick above 18% yoy in June, food inflation likely entered into the double digits after a gap of 21 months. 

Higher food price inflation has been surprising given the decline in global agricultural prices but probably reflects the serious effects of drought in several regions. Finally, transportation inflation has averaged nearly 7% this year compared with average inflation of 2.2% in this segment since the beginning of 2012.