February 7, 2020 / 12:40 PM / 19 days ago

UPDATE 2-Brazil inflation posts lowest January rise since "Real Plan" launch in 1994

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By Jamie McGeever

BRASILIA, Feb 7 (Reuters) - Brazilian inflation kicked off the year on a soft footing, official figures on Friday showed, as the IPCA consumer price index posted its smallest January increase since the country’s “Real Plan” was launched more than quarter of a century ago.

Consumer prices rose by 0.21% on the month, down from 1.15% in December and lower than the 0.34% median forecast in a Reuters poll of economists, driven by a sharp decline in meat prices.

That was the lowest inflation rate for any month of January since the so-called “Real Plan”, which introduced the currency still in use today, was launched in July 1994 to end Brazil’s history of hyper-inflation.

The annual rate of inflation was 4.19%, also down from 4.31% the month before and less than the 4.32% economists had expected.

“This probably marks the peak for inflation, and with the economic recovery this year likely to be slower than most expect, monetary conditions will likely stay loose,” Quinn Markwith, emerging markets economist at Capital Economics, wrote in a note to clients.

The central bank this week cut interest rates to a new low of 4.25% and signaled that would be the last in the cycle. Its inflation outlook for this year softened slightly to 3.5%, below its official goal of 4.00%, while its 2021 outlook of 3.7% was roughly in line with its 3.75% target.

The slowdown in inflation last month was largely driven by food and beverage prices, and meat prices in particular, IBGE said.

After surging 18% in December, meat prices fell 4% in January, slowing the monthly pace of food and beverages inflation to 0.39% from 3.38% in December. That led to a 0.11 percentage point drag on the overall index.

Transport inflation also slowed, to 0.32% in January from 1.54% in December, while on the upside housing costs rose 0.55% in the month following a fall of 0.82% in December, IBGE said.

January’s calculations were based on a new basket of goods and services to monitor changes in consumer habits, and included transport prices from apps aggregated for the first time by a virtual robot, IBGE said. (Reporting by Jamie McGeever; editing by John Stonestreet and Chizu Nomiyama)

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