Brazil Inflation During May Seen At 8 Months Low

 Brazil Inflation During May Seen At 8 Months Low

Brazil's Inflation During May Seen At 8-Months Low

According to a recent forecast made by economists, the inflation in Brazil during May likely touched an 8-month low. If this turns out to be true, it will allow the central bank to introduce rate cuts during the 2nd half of 2023.

If we look at inflation on a 12-month basis, the upcoming data will show one of the smallest increases in the last 2 years. If this happens, it will mean the central bank will start the easing cycle starting this year.

During May, the IPCA inflation index likely jumped by 0.33%, which is one of the weakest readings since 2022. And if we look at the 12-month period, it turns out to be around 4.04% which is the lowest reading since 2020. One thing to note here is that these are forecasts, and the actual data may differ.

Lower Gas Prices Will Also Effect Inflation

According to economists at UBS, the price cuts in fuel will also start to show their effect in the inflation report. Overall, gasoline prices will lead to -7 points to the inflation reading.

In Brazil, Petrobras (the state oil company of Brazil) has adopted a new policy for pricing fuel which will lead to a sharp decrease in fuel costs.

In addition, Brazil also benefited from bumper crops which means a reduction in food prices is also likely. In fact, it wouldn't be wrong to say that the chances of disinflation in the food industry have increased tremendously.

For now, the interest rate in Brazil is set at 13.75% which highlights the hawkish stance of the central bank. But after the inflation report, there's a good chance that it will start to go down which will also improve the industrial production in the country.

However, there's also a chance that the central bank of Brazil may adopt a more cautious approach when it comes to dealing with inflation and interest rates.

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