Interest rates set to tumble in Brazil, Pantheon Macroeconomics says

Consumer prices in Brazil edged higher in September but remained well below the central bank's target level, which meant policy rates were set to tumble, according to some economists.

The IPCA-15 measure of prices edged higher by 0.1% on the month as expected, which in turn saw the year-on-year rate of change slip from 2.6% to 2.5%.

Higher regulated prices, for transport fares and housing, were the main factors pushing up on prices, offsetting a 0.9% drop on the month in food price inflation.

Headline inflation would head higher in coming months but just marginally so, ending the year at 3%, and stay below the central bank's target of 4.5% over the first half of 2018, according to Andres Abadia, senior international economist at Pantheon Macroeconomics.

Favourable base effects and a stable currency would help in that regard, he said.

In fact, in its latest quarterly inflation forecast released just the day before Banco Central do Brasil had trimmed its inflation forecast for 2018 from 4.5% to 4.3%, predicting that inflation would keep below 4.5% over the following two years.

Alongside "progress on the fiscal front", Abadia forecast the BCB would lower the selic rate from 8.25% to 7.0% by year end 2018.

"Inflation pressures remain under control, reflecting still-weak domestic demand and the sharp fall in wholesale agricultural prices in recent quarters. [...] Indeed, following today’s inflation data and the Q3 report, the odds of even lower rates by year end have increased."