Brazil's upside inflation risks remain elevated

The upside risks to the Brazil's near-term inflation outlook have risen further due to the surprisingly stronger acceleration in food prices over the past couple of months and the continued rise regulated goods and services prices. 

The in-sample forecasts from the structural inflation models put Q2 inflation at 7.0-7.2%. The additional inflation may be attributed to the effect of price adjustments and the upside shock to food prices.

However, while escalating upside risks imply that the medium-term inflation outlook remains considerably uncertain, the model estimates appear to confirm a continued surge in trend inflation fundamentally. 

"Both these factors mean upside risk to the forecast that the Selic rate will peak at 14.50% in Q3 15", says Societe Generale.