By Gabriel Araujo
SAO PAULO, July 28 (Reuters) – Brazil’s 12-month inflation rate undershot forecasts and moved closer to the central bank’s target range in its mid-July reading, official data showed on Tuesday, paving the way for a fourth consecutive interest rate cut next week.
Annual inflation in Latin America’s largest economy slowed to 4.52%, statistics agency IBGE said, from 4.80% a month earlier, coming in below all estimates in a Reuters poll of economists, whose median forecast was 4.67%.
Brazil’s central bank targets inflation at 3%, plus or minus 1.5 percentage points. Its interest rate-setting committee, known as Copom, will meet again on August 4-5.
Last month, policymakers cut borrowing costs for a third straight meeting by 25 basis points, to 14.25%, and left their next steps open while acknowledging a more challenging inflation outlook.
“The drop in mid-month inflation in July is likely to provide scope for the central bank to deliver another 25-basis-point interest rate cut at next week’s meeting,” said Capital Economics’ senior emerging markets economist Liam Peach.
Central bank governor Gabriel Galipolo said last week that concerns about unanchored inflation expectations support keeping monetary policy restrictive for longer, with the labor market and activity still resilient in the country.
In the month to mid-July alone, consumer prices were up 0.06%, slowing from 0.41% in the previous month, while markets had expected a 0.20% rise.
Prices in the period were driven mainly by higher housing costs due to a jump in electricity bills. Meanwhile, closely watched food and beverage prices fell 0.66% in the period.
Inter chief economist Rafaela Vitoria said the data reinforced signs that price pressures were easing, noting that underlying indicators such as services inflation and core measures show a clear trend of deceleration.
“In the short term, the conclusion is that Copom can continue cutting rates. There is no reason for a pause at this moment. Were it not for the more volatile external environment, it could even be discussing 50-basis-point cuts,” she said.
(Reporting by Gabriel Araujo, Editing by Louise Heavens and Alistair Bell)
