September 25, 2017 / 12:26 PM / a year ago

Economists expect Brazil 2017 inflation to be below official target

SAO PAULO (Reuters) - Economists expect Brazil’s inflation rate to end 2017 below the government’s target range for the first time ever, according to a central bank survey on Monday.

FILE PHOTO: People shop at the Municipal Market of Sao Paulo in downtown Sao Paulo, Brazil September 6, 2017. REUTERS/Paulo Whitaker/File Photo

Consumer prices, as measured by the benchmark IPCA index, are likely to rise 2.97 percent in 2017, according to the median of around a hundred forecasts, down from 3.08 percent a week ago.

If confirmed, that rate would be at the bottom end of the central bank’s official target range of 4.5 percent plus or minus 1.5 percentage points. The bank has missed its inflation target three times in the last two decades, but has never undershot it.

Indeed, this year’s inflation rate may be even lower, with the five most accurate forecasters in the central bank survey predicting a 2.81 percent rate.

The results suggest the central bank may take its time to halt interest rate cuts, providing further support to Brazil’s recovery from the deepest recession in a century.

According to the survey, the Selic rate, currently at 8.25 percent, is expected to end 2017 at a 7 percent all-time low and remain there until at least the end of 2018.

Monetary easing seem to be having some effect on household spending, with several economic indicators - from retail sales to gross domestic product (GDP) and employment - beating expectations in recent months, but not enough to generate substantial price pressures.

Inflation has held near 18-year lows for months as a surprisingly strong agricultural harvest hammered food prices lower. Services inflation, which is closely tied to aggregate demand, also remains subdued.

Economists polled by the central bank revised their forecasts for GDP growth in 2017 and 2018 to 0.68 percent and 2.30 percent, respectively, up from 0.60 percent and 2.20 percent.

Editing by Bernadette Baum

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