June 6, 2019 / 1:04 PM / 14 days ago

Brazil inflation to fall for first time this year: Reuters poll

BRASILIA (Reuters) - Brazil’s annual rate of inflation likely eased in May, according to a Reuters poll of economists, falling for the first time this year in a sign that it may have peaked, while remaining well above the central bank’s target.

FILE PHOTO: Customers shop at a supermarket in Rio de Janeiro, Brazil July 28, 2018. REUTERS/Sergio Moraes

The median estimate from 15 economists was for consumer price inflation to fall to 4.72% in the 12 months through May from 4.90% in April, driven by weaker food and fuel prices.

The monthly rise is seen slowing to 0.20% from 0.57% in April, according to the poll, a rate that would be the lowest this year.

“We anticipate food deflation to have gained momentum in the second half of May, which underpins our expectation for (monthly) inflation to have moderated to 0.21% in May,” said Barclays economists in a note to clients. “If our forecast is correct, annual inflation should decelerate to 4.7%.”

Central bank policymakers will be hoping the forecasts are right. April’s annual inflation of 4.9% was the highest in more than two years, above the central bank’s year-end target of 4.25% and brought a break above the 5.0% threshold closer into view.

Policymakers earlier this year said inflation would peak around April or May before returning to target. But minutes of their May 7-8 meeting showed they had softened that view slightly, and now see inflation peaking “in the short term.”

In broad terms, Brazil’s economy is generating few inflationary pressures. Activity contracted in the first quarter for the first time since 2016 and the indications are the current quarter is not much better. Recession risks are rising.

In addition, unemployment remains high, at 12.5%, with more than 13 million Brazilians out of work and a huge degree of spare productive capacity across the economy.

On the other hand, Brazil’s currency weakened to 4.12 per dollar BRBY in May, the worst in eight months, pushing up import prices and input costs. That has put the squeeze on companies weighing whether to pass higher prices along to consumers.

IHS Markit said this week that exchange rate pressures kept input price inflation at “elevated” levels in May, but companies raised their prices only “marginally” in comparison.

“Across the private sector, charge (price) inflation eased to a three-month low,” it said.

Reporting by Jamie McGeever; Additional reporting by Gabriel Burin in Buenos Aires; Editing by Brad Haynes and Steve orlofsky

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