Brazil: Inflation finishes 2012 above target

Brazil: Inflation finishes 2012 above target

Gustavo Arruda - Market Economics
Latam Macro Snapshot | 10 Jan 2013 14:34 |

IPCA inflation ended 2012 at 5.84%, and we see more upward pressure going forward. The annual reading was above the 4.5% official target centre, although still below the target tolerance ceiling of 6.5%. In the annual comparison, inflation will continue to increase in the coming months, in our view. We fear it may breach the inflation target ceiling of 6.5% already during the first half of the year.

In December, monthly IPCA inflation increased 0.79%m/m – above our forecast of 0.75%m/m and consensus of 0.74%m/m. Services prices inflation (+0.98%m/m) and clothing price inflation (+1.11%m/m) surprised to the upside, pushing inflation up. For January, we expect higher monthly food inflation, in line to our inflation daily tracking – we see January IPCA inflation rising above 0.80%m/m, pushing the 12-montth comparison to the 6.0%y/y mark.

In all, inflation will be a major theme in Brazil in 2013, we believe. We remain very confident in our long-held out-of-consensus call that inflation will be a much bigger headache than people think.

Details:

All core measures remain elevated. The average of three core measures is running at 5.8%y/y, significantly above the official target centre of 4.5%.Services price inflation ended 2012 at 8.7%y/y - higher than November reading (8.2%y/y), reflecting wage pressures amid tight labour markets.

Gustavo Arruda