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Brazil’s inflation data to massively undershoot target for second month running

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Brazil’s inflation data to massively undershoot target for second month running

People shop at the Municipal Market of Sao Paulo in downtown Sao Paulo, Brazil
People shop at the Municipal Market of Sao Paulo in downtown Sao Paulo, Brazil
Photo: Reuters/Paulo Whitaker

 

Brazil’s inflation rate hit an 18-year low in August; today’s figures are expected to show a continuation of this trend.

A decline in food and electricity prices is being cited as the reason for flat-lining consumer prices. Brazil experienced a record harvest in the first half of the year, due to heavy rainfalls, which also boosted the country’s hydroelectric power generation. A hike in electricity prices this month and the coming dry season are likely to alleviate this unexpected downward pressure on inflation.

With the current annualised inflation rate at 2.46%—well below the central bank’s 4.5% target—Brazil is on the verge of undershooting on inflation; however, considering the key rate was in double digits last year, today’s figures may well be perceived as the result of a successful war on inflation.

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Expect interest rates, currently at 8.25%, to be cut in the near future; economists think the cash rate could drop to below 7% by the year’s end.

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