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By Jamie McGeever
BRASILIA, May 8 (Reuters) - Inflation in Brazil fell to its lowest in over 20 years on both a monthly and annual basis in April, figures on Friday showed, indicating that the COVID-19 crisis and looming recession will crush price pressures and pave the way even lower interest rates.
Steep declines in fuel and transport costs drove the broader 0.31% decline in consumer prices, statistics agency IBGE said, as social isolation and quarantine measures to combat the pandemic took their toll on demand.
Transport costs fell 2.66% in the month, IBGE said, led by a near-10% fall in fuel prices, most notably a 9.3% fall in gasoline prices alone.
The 0.31% overall fall in IPCA consumer prices last month was greater than the 0.2% decline forecast in a Reuters poll of economists, and the biggest monthly fall since August 1998.
The annual rate of inflation slowed to 2.40%, lower than the 2.49% forecast in a Reuters poll and sharply down from 3.3% in March. It was also the lowest since February 1999.
“Low core and services inflation should give the central bank near-term comfort,” Alberto Ramos, head of Latin American research at Goldman Sachs, wrote in a note on Friday.
That is well below the central bank’s official target for the year of 4.00%. Earlier this week, the bank cut rates by a larger-than-expected 75 basis points to a new low of 3.00% and signaled it could repeat the dose at its next meeting.
Ramos said this is likely to happen, given the expected “significant” negative economic impact of coronavirus, large decline in commodity prices, sharp tightening of domestic financial conditions and a shift to monetary easing around the world.
Food and drink prices continued to rise, however, as lockdown measures meant people bought more food to cook at home, IBGE said. Food and drink prices rose 1.79% on the month, by far the biggest increase. (Reporting by Jamie McGeever Editing by Nick Zieminski)