Monthly IPCA inflation slowed in June, to 0.15% m/m (consensus was 0.07%), down from 0.47% m/m a month earlier (or from 0.23% m/m in mid-month IPCA-15 inflation), helped by seasonal factors. Transport and food prices were the main driver for the deceleration, as food price inflation fell into negative terrain, while transport price deflation got deeper. Transport price deflation intensified to -0.61% in June from -0.24% a month before, mainly on a decline of 4.25% on fuel prices (mostly ethanol, but also gasoline), despite a jump in airfares (from -11.57% to 12.85%). Food price inflation swung to -0.26% from 0.63% a month before.
Measures of core inflation improved, but remain well above target. Measures of core inflation slowed on average in the monthly comparisons. But they remain elevated, above the target centre (4.5%) and closer to the target ceiling (6.5%). Services price inflation remains high. The average of the three different measures of core inflation that the BCB monitors is running at 6.2% in month-on-month annualized terms. Services s.a. price inflation is running at 9.3% in month-on-month annualized terms.
Annual inflation is running above the target ceiling. While monthly inflation slowed, the annual comparison actually worsened to 6.71% y/y from 6.55% y/y a month earlier. Therefore, inflation is running above the 6.5% target tolerance range. Looking ahead, monthly figures (%m/m) look set to remain low for a while, for seasonal reasons. Still, we are unlikely to repeat the three consecutive monthly readings at zero that we saw in June-August 2010. So, the year-on-year comparison looks likely to increase further in coming months, even though monthly figures (%m/m) stay low. Headline inflation had increased from 4.3% in 2009 to 5.9% in 2010 (December over December), and looks set to climb yet higher during 2011, farther away from the official calendar-year target centre of 4.5%.
In all, monthly inflation slows, helped by seasonal factors, but underlying inflation trends remain challenging. The central bank still has work to do. We reaffirm our out-of-consensus view: the central bank will have to keep hiking rates for longer than most observers seem ready for.
Details:
Monthly inflation (m/m inflation compared to a month earlier):
* Core – smoothed trimmed means: from 0.62% to 0.53%;
* Core – double-weight: from 0.58% to 0.42%;
* Core – exclusion: from 0.54% to 0.56%;
* Average of the 3 main measures of core inflation: from 0.58% to 0.50%;
* Services s.a.: from 0.64% to 0.75%;
* Diffusion index s.a. (% of goods with a positive price change): from 63.1% to 59.4%.
Annual changes (y/y inflation):
* Headline: from 6.5% to 6.7%
* Food: from 8.2% to 8.9%;
* Services: from 8.4% to 8.6%;
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