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Further Analyst Reactions To December Inflation Data

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  • Itaú note the disinflation process unfolded more swiftly throughout 2023, supporting the loosening of a still tight monetary policy. The large downside surprise to the Central Bank in December (0% implicit expectation in headline and +0.15% in ex volatiles for December from the 4Q IPoM) will increase market expectations to again accelerate the pace of rate cuts. With limited demand side inflationary pressures, Itaú expect the central bank to take the policy rate to neutral as quickly as possible.
  • JPMorgan noted December’s deflation not only offset November’s upward surprise, It also drove annual inflation back into the CB’s target range. In addition, Dec’23 CPI came well below the CB Staff central scenario, which assumed 4.5%oya for the year-end. The 60bp gap thus opens the door for the Board to contemplate the possibility to accelerate again the easing pace to 100bp, if external conditions allow so, taking into consideration the next policy meeting is to take place early in the second quarter (April 2).
  • Following today’s print, Goldman Sachs revised their modal call for the Jan meeting to a 75bps cut from 50bps before. Going forward, however, GS remain concerned with the stickiness of core-services inflation where high nominal wage growth and sizeable minimum wage increases pose a risk to the disinflationary process. Climate risks from El Niño also pose a threat to food inflation.

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