Brazil’s Inflation rate likely to stay above BCB’s target this year

Brazil's January inflation is expected to moderate to 10.20 percent yoy (0.81% mom) from December's 10.67 percent, even after witnessing an increase in the mid-month inflation report. This expected decline of 0.47pp would record the highest monthly decline in almost four years.

Average inflation is expected to be at 7.2 percent in 2016. Deteriorating fiscal situation and structural rigidities weigh on BRL, and are expected to keep inflation significantly above the central bank's target throughout this year. Inflation is not expected to fall within its target range this year; however, it is likely to decline aggressively in the next year as a result of slow growth and labour market deterioration.