April fall in Brazilian inflation opens door to rate cuts, analyst says

Increases in the cost of living in Brazil continued to decelerate in April, possibly opening the door to interest rate cuts by the central bank in the back half of 2016.

The mid-month IPCA index of consumer prices retreated by 0.5% month-on-month in March, dragging the year-on-year rate of advance from 9.95% in April to 9.3%, as expected by economists.

That compared to the central bank’s target of 6.5%.

Food and beverage prices registered the largest increase, rising by 1.4% over the month while healthcare were up by 1.3%, boosted by the annual regulated jump in the price of medicines.

Housing prices fell by 0.4% in comparison to March, following a dip of 0.5% in the month before as electricity tariffs fell.

“Overall, today’s report brings further evidence that inflation is decelerating. This is in line with our view that the BCB will start to ease interest rates during the second half of the year. Temporary supply-shocks and the effect of regulated price increases in Q1 are finally fading,” Andres Abadia, senior international economist at Pantheon macroeconomics said in a research note sent to clients.

As of 14:36 BST the US dollar was up by 0.62% to 3.5541 versus Brazil’s real.