MercoPress. South Atlantic News Agency

Brazil's inflation tendency again picks up as food and transport prices rebound

Fears the depreciation of the Real will have an impact on inflation in coming months

Brazil’s twelve-month inflation ended August at its lowest level this year, according to a central bank survey of fourteen economists. This means the 12-month IPCA consumer-price index is likely to weigh in at 6.10% for August, down from 6.27% at the end of July.

Brazil’s official IBGE statistics bureau is due to release August inflation figures on Friday. If confirmed, it would be the lowest read since December 2012, when IPCA stood at 5.84%.

However even at these levels inflation is worryingly close to the ceiling of the government’s official target range for the year. Under Brazil’s inflation-targeting program, the government’s target for inflation is 4.5%, although there is a margin of tolerance equivalent to two percentage points on either above and below the target.

The Central Bank of Brazil has raised interest rates four times since April, most recently last week, lifting the Selic rate to 9% per year. Minutes of the meeting will be published on Thursday.

Meanwhile, economists expect prices to have accelerated in August, with IPCA rising by 0.25%, compared with a rise of 0.03% in July, as food and transports prices rebounded.

Brazil’s central bank has said it expects inflation to start to decelerate in the second half of the year. Yet the rapid depreciation of the Brazilian currency against the dollar was perhaps unforeseen, and the central bank has said it’s watching the currency closely.

Economists believe that the currency’s slide will prompt more interest rate hikes than had initially been expected. A weaker currency drives up the costs of imports–although the extent of the impact is hotly debated.

“We believe that the depreciation of the Brazilian Real will start to pressure consumer prices from September,” said economists at Banco Santander in a research report. “This reinforces the need for the central bank to maintain a more hawkish approach, with controlling inflation a priority.”

Brazil’s Finance Minister Guido Mantega said the government is watching closely for any pressures on inflation that might arise from the recent depreciation of the Brazilian real. “We have to be attentive to what’s going to happen to inflation in coming months as a result of the weakness of the real,” Mr. Mantega told reporters last week.