(Adds data, market reaction, economist's comment)
By Silvio Cascione
BRASILIA, May 10 Brazil's annual inflation rate
fell in April to its lowest level in nearly 10 years, bolstering
the view of a steep interest rate cut by the central bank at the
end of this month.
Consumer prices rose 4.08 percent in the 12 months through
April, slightly below market forecasts for a 4.10 percent
increase and compared with an increase of 4.57 percent in the
year to March, the national statistics bureau IBGE said on
It marked the lowest annual inflation rate in Brazil since
July 2007. It was also below the government target of 4.5
In the month of April, consumer prices edged up 0.14 percent
compared with a 0.25 percent rise in March, the IBGE said.
Annual inflation has tumbled rapidly from a 12-year peak of
10.7 percent in January 2016 as the worst recession on record in
Brazil caused massive unemployment and reduced consumer demand.
As inflationary pressures have eased, the central bank has
steadily reduced its benchmark interest rate from 14.25 percent
Last month, the bank slashed it by 100 basis points to 11.25
percent. It was the deepest cut to the rate in nearly eight
In morning trade, yields on interest rate futures fell.
They now reflect traders' view of a 30 percent chance that
the central bank would cut the rate by 125 bps at the May 31
meeting of its monetary policy committee (COPOM) and a 70
percent likelihood of a 100 bps reduction, according to Thomson
On Tuesday, the outlook was for a 20 percent probability of
a 125 basis cut.
"With headline inflation now below target, COPOM's main
focus will be the on the progress of fiscal reforms through
Congress," wrote Edward Glossop, emerging markets economist at
A major investor focus is the prospect of congressional
approval of a pension reform bill, the cornerstone of a
government plan to curtail a gaping budget deficit.
A one-off cut in electricity rates helped curb inflation
last month as the government reversed a tariff surcharge related
to the Angra 3 nuclear power plant.
Fuel prices also dropped, but food costs rose at a faster
pace than in March, the IBGE data showed.
Below is the result for each price category:
- Food and beverages 0.58 0.34
- Housing -1.09 1.18
- Household articles -0.28 -0.29
- Apparel 0.48 -0.12
- Transport -0.06 -0.86
- Health and personal care 1.00 0.69
- Personal expenses 0.09 0.52
- Education 0.03 0.95
- Communication 0.55 -0.63
- IPCA 0.14 0.25
(Reporting by Silvio Cascione; Editing by Chizu Nomiyama and W