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10 Apr 2012

Positive inflation surprise

Inflation slows as part of government strategy

The monthly inflation rate in March (IPCA) rose 0.21% from February, when inflation was 0.45% m/m. Thus, the monthly price increase in March surprised positively and was significantly lower than the 0.42% m/m that was expected by the market in the week prior to publication.

The 12-month accumulated IPCA index continues the strong downward trend, as evident from the figure, and was 5.24% p.a. in march, which is the lowest level since October 2010.

BCB's strategy supported
The news supports Banco Central do Brasil's (BCB) strategy to stimulate the economy through the interest rate, which has seen the leading Selic interest rate to be lowered from 12.5% p.a. to the current 9.75% p.a. during the past 6-8 months. A further rate cut might be within sight at the forthcoming interest rate meeting, 17-18 April.

Inflation _marts _12-1

Fiscal policies
Initially, the government let BCB stimulate the economy with interest rate cuts. However, more recently the government has stepped up the fiscal stimuli like tax breaks to selected sectors and subsidized loans.