By Gabriel Burin
(Reuters) – Brazil’s consumer price data for May will likely show an acceleration in inflation, reflecting damage from recent disastrous floods in the south, according to a Reuters poll published on Monday.
Annual inflation, forecast at 3.89%, would also have deviated further from the center of the official target of 3% +/- 1.5 percentage points, but this would be attributable to temporary disruptions in production and logistics caused by excessive rainfall in Rio Grande do Sul.
Price data to be published on Tuesday is expected to show a monthly increase of 0.42% in May versus 0.38% in April and 3.89% for the year versus 3.69%, according to median estimates of 23 economists interviewed from June 5th to 10th.
“This release will probably begin to reflect the effects of the floods in southern Brazil. Despite the monthly slowdown in food inflation at home, it could accelerate from 2.6% to 2.9% year-on-year,” UBS analysts wrote in a report.
“We expect (food inflation) to peak at 4% in June, before slowing to 3.4% in August and 3.1% at the end of the year… with most of the effects being temporary, we believe the most food products increase from May and June may reverse in subsequent months.”
In its latest effort to contain the economic repercussions of historic floods that killed more than 170 people, Brazil purchased 263,370 metric tons of imported rice in a rare auction to avoid a price hike.
Some preliminary data showed that food inflation caused by the floods was milder than initially feared. Still, many economists, including the central bank’s orthodox leadership, remain concerned about long-term trends.
Inflation expectations continued to rise towards 4% this year, given a relatively strong labor market, persistent concerns on the fiscal side and divergent opinions among policymakers at the Central Bank of Brazil (BCB).
“The economy is still growing close to its potential, the job market continues to contract and the Brazilian real is under pressure for several national and global reasons,” economists at Société Générale wrote in a report.
“A very slow process of inflation moderation may resume after July, but we do not expect inflation to fall close to the BCB’s target… during the political horizon.”
Brazil’s economy grew 2.5% year-on-year in the first quarter, recovering from a slow second half of 2023.
Last month, Brazil’s finance minister denied that the government was considering changing the inflation target after calling the 3% target “very demanding”, adding that he favored a period longer than the year current civil status to assess compliance with it.
(Reporting and research by Gabriel Burin; Editing by Susan Fenton)
