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Data today from Brazil showed inflation rose 0.01% in June and 3.4% from a year ago. Analysts at Rabobank point out that with some help from one-off base effects like the truckers strike in 2018, the annual IPCA reading plunged to a one-year low, way below the Brazil Central Bank’s mid-target for this and next year, 4.25% and 4.00%, respectively.

Key Quotes:  

“In addition to the slowing headline, underlying inflation trends remain at comfortable (and below-target) levels. The average of the main core inflation gauges stands at 3.2% y/y and 3.4% q/q-saar. These figures show that (proxies for) demand-led inflation sit at the low end of the BCB’s target zone.”

“With non-core items giving back gains seen in previous months, and underlying inflation trends still running much below the BCB targets, we continue to watch a tranquil environment from a CPI perspective. Medium term, we see no big threat for the inflation outlook as economic reforms are (apparently) advancing in Congress at last, within a context of anchored inflation expectations, sluggish and well-below potential activity, and tame FX.”

“The inflation outlook continues to warrant Selic rate cuts to another historical low of 5.0% by end-2019. We have been looking for three moves of 50bp starting in September, but an imminent passing of a robust pension reform at the Lower House this week increases the odds for a July move by the Copom.”