By Gabriel Burin
(Reuters) – Brazil’s consumer price increases are likely to have remained subdued in March but some services continued to show worrying increases, leading economists to expect quicker disinflation to come from food and other goods, a Reuters poll showed.
Last month the annual variation of the headline IPCA index probably dropped closer to the midpoint of the wider official target for 2024 of 3% plus/minus 1.5 percentage points as a previous seasonal jump in education costs faded.
It is forecast to register a 4.01% yearly rate and a monthly rate of 0.25% in March, against 4.5% and 0.83% respectively in February, according to median estimates of 23 economists polled over April 3-9.
The monthly inflation report is due on Wednesday.
“We are noting an expected increase in underlying services (0.50%) that continues to be a source of risk … and should only start to slow down from April onwards,” said Banco Santander (BME:) economist Adriano Valladao P. Ribeiro.
“Despite this, most core inflation measures are expected to improve in March, and in particular, we are projecting an increase of just 0.23% month on month for the average of the five main core readings.”
Central bank governor Roberto Campos Neto warned last week of “some contamination” in the trajectory of service prices derived from wage gains that, combined with high inflation expectations, warranted a cautious policy stance.
Stronger salaries are linked to resilient domestic labor markets. The unemployment rate remains close to its lowest since 2015 while Latin America’s largest economy continues to create jobs despite some signs of deceleration.
This has been one of the main factors keeping inflation expectations for 2024 persistently above the central target of 3% in the bank’s weekly poll of private sector economists, frustrating policymakers’ hopes for lower projections.
Nevertheless, some analysts forecast a convergence towards this narrower official goal, starting this quarter, with help from the other main components of the IPCA index outside services.
A report by UBS economists said they expect food inflation to “surprise consensus to the downside” in the second quarter while industrial goods have “downside bias” throughout the year.
“We forecast 3% for IPCA in 2024,” they wrote.
Much will also depend on the Brazilian real’s resistance to the threat of higher currency volatility and the potential hit on consumer prices after the real fell to its lowest since October last week on growing doubts over future monetary policy.
(Reporting and polling by Gabriel Burin; Editing by David Goodman)
