Falling Inflation and Continuation of Monetary Easing

BRAZIL ECONOMICS - Report 14 Aug 2017 by Affonso Pastore, Cristina Pinotti, Marcelo Gazzano and Caio Carbone

The increase of 0.24% in the June IPCA exceeded the market consensus by 6 basis points, but the rise was all explained by the change in the electricity rate flag (from green to yellow) and the increase in the tax on fuels. All the same, inflation over the previous 12 months through August was only 2.71%, far below the lower bound of the target interval (3%). There was no change in the strong disinflationary trend, and all signs are that the Central Bank will continue cutting the SELIC rate. We project that inflation will be 3.7% at the end of 2017 – below the target of 4.5%.

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