April 20, 2017 / 12:28 PM / a year ago

UPDATE 2-Brazil's inflation undershoots target for first time since 2010

 (Adds comments, market reaction)
    By Silvio Cascione
    BRASILIA, April 20 (Reuters) - Brazil's inflation rate fell
below the government's target for the first time since 2010 in
mid-April and was set to drop further in coming months, a
victory for policymakers that underscored expectations of deep
interest rate cuts ahead.
    Consumer prices as measured by the IPCA-15 index
 rose 4.41 percent in the 12 months through
mid-April, slowing from an increase of 4.73 percent in the
twelve months through mid-March, statistics agency IBGE said on
    Brazil's government targets a 4.5 percent inflation rate. 
    Price increases have eased sharply since hitting a 12-year
high of almost 11 percent in January 2016 as the country slumped
into its worst recession in more than a century.
    "Given the current rate of price increases, annual inflation
looks set to drop to below 4 percent by June, and bottom out at
around 3.8 percent in July/August," Capital Economics chief
emerging markets economist Neil Shearing wrote in a note.
    High inflation helped dent the popularity of former
president Dilma Rousseff, who was impeached last year. Her
successor President Michel Temer, also facing low approval
ratings amid a massive corruption scandal, has praised the
recent slowdown as a sign that his policies are mending the
once-booming Latin American economy.
    The surprisingly quick decline in inflation rates helped
open the door for the central bank to cut interest rates by 3
percentage points since October, to 11.25 percent. Economists
expect the aggressive series of cuts to take the benchmark Selic
rate to 8.5 percent by the end of the year. 
    The inflation slowdown has also prompted government
officials to openly discuss the possibility of lowering the
inflation target for 2019 and beyond. 
    Yields on interest rate futures slipped on Thursday as
traders added bets on another 100-basis-point cut in the Selic
rate at the next central bank policy meeting in May.
    Prices had been expected to rise 4.49 percent in the year
through mid-April, according to a Reuters poll.
    Consumer prices rose 0.21 percent from mid-March, up from an
increase of 0.15 in the previous month. The index was expected
to rise 0.27 percent, according to the poll.
    It was the smallest monthly increase for mid-April since
2006, IBGE said.    
    Below is the result for each price category:    
                             mid-April  mid-March
 - Food and beverages             0.31      -0.08
 - Housing                        0.39       0.64
 - Household articles            -0.43      -0.30
 - Apparel                        0.44      -0.02
 - Transport                     -0.44      -0.16
 - Health and personal care       0.91       0.48
 - Personal expenses              0.23       0.30
 - Education                      0.14       0.87
 - Communication                  0.18      -0.31
 - IPCA-15                        0.21       0.15
 (Reporting by Silvio Cascione; Editing by Lisa Von Ahn and
Meredith Mazzilli)
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