Brazil inflation slightly exceeds forecasts in April as pace of rate cuts slows

By Thomson Reuters May 10, 2024 | 9:55 AM

SAO PAULO (Reuters) – Brazil’s annual inflation continued to trend down but slightly less than expected in April, official data showed on Friday, in the first consumer price readings after the nation’s central bank voted to reduce the pace of its interest rate cuts.

Inflation in Latin America’s largest economy hit 3.69% in the 12 months through April, statistics agency IBGE said, slowing from 3.93% in the previous month, but a tad above the 3.66% expected by economists polled by Reuters.

Earlier this week, Brazil’s central bank cut rates by 25 basis points to 10.5%, slowing its ongoing easing cycle after six straight 50-basis-point cuts. The split decision sent shares and the real currency tumbling after minority votes in favor of a bigger cut raised concerns monetary policy could take a dovish turn under pressure from politicians.

Annual inflation remains within the bank’s target range of 3% plus or minus 1.5 percentage points, but recent global uncertainties bolstering interest rate futures and the U.S. dollar have been cited as reasons for the central bank’s greater caution.

“Headline inflation continues to decline and the near-term outlook is benign, but the dollar’s rebound since February will start to stoke inflationary pressures in the coming months,” Pantheon Macroeconomics economist Andres Abadia said.

“As such, we continue to expect the headline rate to end the year at around 3.5%.”

Consumer prices in April rose 0.38% from March, according to IBGE, accelerating from 0.16% in the previous month and also slightly exceeding economists’ 0.35% forecast in a Reuters poll.

Seven of the nine groups surveyed by the statistics agency saw price increases in April. Healthcare, food and beverage cost increases stood out, while economists highlighted a drop in the closely watched services inflation as positive.

“Despite the higher-than-expected reading, we still see a benign process and no evident signs of inflation re-accelerating,” Inter’s chief economist Rafaela Vitoria said.

“We believe the monetary easing cycle will continue with additional 25-basis-point cuts, bringing the benchmark rate to 9.25% at the end of 2024.”

(Reporting by Andre Romani and Gabriel Araujo; Editing by Tomasz Janowski)