Brazil Inflation At Lowest In More Than Two Years Amid Calls For Rate Cuts

  • Consumer prices in Brazil decelerated more than expected in May, government data showed, with 12-month inflation hitting its lowest in more than two years as it dropped below the 4% mark for the first time since late 2020.
  • Annual inflation in Latin America's largest economy hit 3.94% in May, statistics agency IBGE (Brazilian Institute of Geography and Statistics) said, down from 4.18% in the previous month, reaching its lowest since October 2020.
  • The figures look to add weight to calls by the government and business people for the central bank to lower interest rates from their current six-year high of 13.75%. Pantheon Macroeconomics economist Andres Abadia highlighted in a note to clients that with inflation dropping overall, "leading indicators are pointing to a benign outlook in the near term, opening the door for rate cuts as soon as Q3."
  • Brazil's central bank has kept its benchmark rate at 13.75% since September to control inflation, attracting criticism from President Luiz Inacio Lula da Silva, who sees it as hindering economic growth.
  • Central bank chief Roberto Campos Neto said this week there was still "a problem" with long-term inflation forecasts, with a central bank survey not foreseeing prices to meet their target until beyond 2024, despite being expected to start declining soon. The central bank currently targets inflation of 3.25% for 2023 and 3% for 2024 and 2025, with a tolerance margin of 1.5 percentage points on either side.
  • Although the fall in inflation alongside the strong support for the government's new fiscal framework has strengthened the arguments in favour of interest rate cuts some economists do not believe that monetary easing is imminent.

(Source: Reuters)