No inflation moderation expected until January 2016 in Brazil

Releases through mid-October suggest that inflation likely rose further in October to 9.6% yoy as housing inflation was the strongest in three months and the transport inflation was strongest in four months. In fact, led by these two categories, the IPCA-15 series shows inflation rising again in six out of nine categories (food, apparel and household articles being the other three categories). 

This trend is not expected to persist out to year-end. However, inflation is less likely to fall meaningfully before January 2016 when the effect of adjustments to regulated prices end. Inflation will likely fall at least 1.5pp in January followed by further deceleration throughout most of 2016 (seasonal fluctuations apart). That said, the pressure on the BRL, the fiscal situation and structural rigidities could keep inflation significantly above the BCB's target level throughout 2016. 

"We do not see inflation falling within the BCB's target range (which has been reduced to between 3.0% and 6.0% for 2016) for most of 2016", says Societe Generale.

While the effect of slow growth and the labour market deterioration could lead to a faster-than-expected slowdown in inflation next year, both the current trajectory and recent history provide little grounds for confidence in this regard.