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Analyst Reaction To March IPCA Inflation

BRAZIL
  • The downside surprise to March IPCA inflation was driven by lower-than-expected food, transport and communication prices. Industrial goods inflation fell to just 0.55% y/y, but core services inflation ticked up to 4.99% y/y, as expected. Overall, the decline in headline inflation to 3.93% y/y brought it to its lowest since last June, while core inflation fell 22bp to 3.78% y/y.
  • Market reaction to the data was largely trumped by the subsequent higher-than-expected US CPI release which has resulted in strong broad-based gains for the greenback. USDBRL is currently up ~1% in the session. Brazil swap rates have moved higher but are lagging the move in core rates.
    • Goldman Sachs believe that the inflation dynamics support the continuation of a gradual easing cycle, but the core-services inflation underlying dynamics still merit attention. They highlight the labour sensitive services inflation, which remained high at 0.57% m/m in Mar, lifting the annual rate to 5.53%.
    • Pantheon believe that the moderation in the m/m increase coupled with the potential easing of food price pressures and subdued rises in other components, confirms that underlying inflation pressures are gradually subsiding. They see a benign inflation picture in the near term and expect a sustained disinflationary trend in Q2 and Q3.
  • For reference, the next BCB monetary policy meeting is on May 8.
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