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Analyst Views Following Release of December IPCA Inflation Data

BRAZIL
  • Goldman Sachs: The inflation dynamics support the continuation of a gradual easing cycle, but the services inflation underlying dynamics merit attention. A tight labour market backdrop, expansionary fiscal and quasi-fiscal policy, lack of credibility of the 2024-26 fiscal targets, still unanchored 2024 and-medium-term inflation expectations, a balance of risk for food inflation skewed to the upside, and tight services inflation fundamentals (labour market backdrop and fiscal transfers) demand caution in the near-term calibration of monetary policy.
  • Pantheon: Today’s report confirms that pressures remained largely under control at the end of 2023, helped by the stability of the BRL for most of last year. These downward pressures support Pantheon’s inflation forecast for this year, with the headline rate at 3.5% on average and ending the year around that level, within the BCB’s 1.5-to-4.5% target range. Pantheon still believe that the COPOM will be able to accelerate the pace of easing in the near term, assuming the temporary shocks in the food component ease, as they expect. But last month’s uptick, above expectations, will probably encourage some members of the COPOM to maintain their relatively cautious tone.
  • Additionally, the chief emerging markets economist at Capital Economics, wrote in a note that they expect “the Selic rate will be lowered by less than most anticipate over the course of 2024.” Separately, Mizuho commented that the data underscores “the challenges confronting its plans to gradually relax monetary policy”.
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