April 27, 2017 / 3:35 PM / a year ago

Brazil's wholesale prices tumble on record harvests

BRASILIA, April 27 (Reuters) - Strong crop harvests pushed down wholesale prices in Brazil in April, according to a survey on Thursday, a strong sign that the country’s inflation rate should fall well below the government’s target in coming months.

The IGP-M price index, which measures both producer and consumer prices, fell 1.1 percent in April, think tank Getulio Vargas Foundation (FGV) said.

This was the fastest monthly decline of the IGP-M index in 26 years, mostly due to a steep decline in the wholesale prices of grains such as soybeans and corn, FGV added.

The IGP-M index, widely used in Brazil as a benchmark for annual contract revisions, rose 3.37 percent in the 12 months through April.

Soy and corn prices slumped as farmers expect record crops this year, helped by favorable weather. Wholesale agricultural prices fell 4.3 percent in April from March, according to the IGP-M index.

Producer prices of manufactured goods such as apparel and electronics dropped 0.85 percent from March.

Falling wholesale prices in Brazil should reduce consumer inflation further in coming months, after it slowed from 10.7 percent in January 2016 to 4.6 percent in March.

Lower inflation should in turn keep the door wide open for the central bank to continue slashing interest rates from 14.25 percent last year to an expected 8.5 percent by December, according a market survey.

“Inflation should fall as low as 3.2 percent by August,” said Fabio Romão, an economist with consultancy LCA.

The official inflation target is 4.5 percent.

On top of lowering inflation, the bumper harvests are expected to have boosted Brazil’s economic growth in the first quarter, ending the country’s worst recession ever. They have also contributed to record trade surpluses.

Economists in a Reuters poll expected a 1.0 percent decline in the monthly rate, according to the median of 22 forecasts.

Reporting by Silvio Cascione; Editing by David Gregorio

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