Brazilian inflation data shows an acceleration in May


By Gabriel Burin

(Reuters) – Brazilian consumer price data for May is likely to show an acceleration in inflation due to damage from recent disastrous floods in the south, a Reuters poll published on Monday showed.

Annual inflation, at a predicted 3.89%, would also have deviated further from the center of the official target of 3% +/- 1.5 percentage points, but this would be due to temporary disruptions in production and logistics caused due to excessive rainfall in Rio Grande doe Sul state.

Price data due 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 the average estimates of 23 economists who were interviewed from June 5 to 10.

“This publication is likely to reflect the consequences of the floods in southern Brazil. Although inflation in the food sector is declining on a monthly basis, it could accelerate from 2.6% to 2.9% on an annual basis,” 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% by the end of the year… as most effects are temporary, we think that most of the food inflation will rise.” of May and June could return in subsequent months.”

In its latest bid to stem the economic fallout from the historic floods that killed more than 170 people, Brazil bought 263,370 tons of imported rice in a rare auction to avoid a price hike.

Some preliminary data has shown that food inflation due to the floods was lighter than initially feared. Still, many economists, including orthodox central bank leaders, remain concerned about longer-term trends.

Inflation expectations have continued to rise towards 4% this year, given the relatively strong labor market, persistent fiscal concerns and divergent views among Banco Central do Brasil (BCB) policymakers.

“The economy is still growing close to its potential, the labor market continues to tighten and the Brazilian real is under pressure for several domestic and global reasons,” economists at Societe Generale wrote in a report.

“A very slow process of inflation moderation could resume after July, but we do not expect inflation to fall anywhere near the BCB target… over the policy horizon.”

Brazil’s economy grew at an annual rate of 2.5% in the first quarter, recovering after a sluggish second half of 2023.

Last month, Brazil’s finance minister denied the government was considering changing the inflation target after calling the 3% target “very demanding.” He added that he was in favor of a longer period than the current calendar year to assess compliance.

(Reporting and polling by Gabriel Burin; Editing by Susan Fenton)

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