Brazil's Inflation Slows: Signals Possibility for More Rate Cuts

• Brazil's consumer prices rose slightly less than expected in the mid-April reading, data from statistics agency IBGE showed on Friday. Prices in Latin America's largest economy rose 0.21% in the month to mid-March, below the 0.29% growth expected by economists polled by Reuters.

• The group comprised of food and beverages reported the greatest price hike in the period, growing 0.61%, which accounted for 0.13 percentage points of the total increase. The transportation group, on the other hand, was the only one to report disinflation, as airfare prices fell 12.2%.

• This took the inflation of the previous 12 months to 3.77%, slowing down from 4.14% in the 12 months to mid-March and also below expectations of a 3.86% increase. The reading marked the first time since July last year the figure came in below 4%.

• "All told, the inflation picture continues to improve in Brazil, thanks to favourable base effects, the lagged effect of high-interest rates and softening domestic demand," said Andres Abadia, Chief Latam Economist at Pantheon Macroeconomics.

• This adds to the view that interest rate cuts will continue in the near term, he wrote in a note to clients. Brazil's central bank delivered 50-basis-point interest rate cuts at each of its last six meetings, but Governor Roberto Campos Neto has opened the door for that easing pace to be reduced.

• Given the recent sell-off of the Brazilian real and a more cautious instance from the monetary authority committee, "the most probable scenario is a 25 basis-point cut" on the May meeting, Abadia added.

(Source: Reuters)