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Lower fuel prices will continue to push Brazilian inflation down

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Inflation is expected to continue to drop in Brazil in September — still largely thanks to lower fuel prices. The IPCA-15 mid-month consumer price index, considered to be a reliable predictor of official inflation, was down by 0.37 percent in September.

It was the second straight drop and the lowest figure for the month of September since 1998.

Still, only three out of nine segments saw lower prices over the past month, with transportation seeing the biggest drop, by 2.53 percent. Ethanol, gasoline, and diesel were up to 10 percent cheaper, according to IBGE, Brazil’s official statistics bureau. Airfares were an outlier, going up by over 8 percent in September.

The government has consistently talked about how it has intervened in the economy to lower inflation — frequently using lower gas prices as arguments. But inflation remains high and widespread, with the prices of essential goods still hurting families’ budgets.

Food products, which weigh disproportionately on the poor, saw a slim 0.47-percent drop, thanks in large part to a reduction in milk prices. Milk and dairy products have been a symbol of how high food inflation has been in the country in recent months, with a 39-percent price rise in 12 months.

For the past 13 weeks, top-rated investment firms surveyed by the Central Bank have lowered their year-end inflation forecasts, with the median projection now at 5.88 percent (down from 6.7 percent four weeks ago).

Still, the Central Bank says “the inflationary environment remains challenging,” in the minutes of its latest policy meeting, released on Tuesday morning.

While acknowledging the recent reduction in prices, the bank notes that “inflation of the components more sensitive to the economic cycle and monetary policy, which present greater inflationary inertia, remain above the range compatible with meeting the inflation target.”

“The [Central Bank’s Monetary Policy] Committee assesses that a more tightening global monetary policy stance would have a disinflationary impact in Brazil in the medium term, as it leads to a widening of the global gap and less pressure on the prices of commodity and goods in general. However, it points out that the possible impacts of such repricing on assets in the short term add uncertainty about the effect on Brazilian inflation,” the bank states.

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