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Markets raise inflation expectations for Brazil

For the second straight week, market players surveyed by the Central Bank slightly raised their median year-end inflation forecast for Brazil, from 5.61 to 5.63 percent. On Thursday, official statistics agency IBGE will publish the country’s October inflation rate — with market consensus measured by consultancy firm Refinitiv expecting prices to have climbed 0.47 percent, snapping a three-month streak of deflation.

Overall inflation has decreased in the past few months largely due to lower fuel prices at the pump. That has been made possible by pieces of legislation capping state-level fuel taxes and by the fact that Petrobras, Brazil’s state-controlled oil and gas company, has been slow to raise prices of gas sold at refineries.

For Gustavo Sung, chief economist at Suno Research, Petrobras will increase its prices again imminently. “Domestic fuel prices are below international benchmarks. Petrobras readjustment would increase projections for the [inflation benchmark index] IPCA,” he tells The Brazilian Report.

International oil prices rallied recently, a signal of worries about global energy supplies. But the fluctuations weren’t reflected in Brazil — which many believe was due to government interference, holding down price bumps in the lead-up to the election. Per Abicom, an association of fuel importers, gasoline and diesel are 9 and 8 percent below international prices.

In the last week of October, the Central Bank reaffirmed its long-term battle against inflation and said it could bring back interest hikes after holding the Selic benchmark rate stable for two policy meetings. The bank said it “will not hesitate to resume the tightening cycle if the disinflationary process does not proceed as expected.”

Also for the second straight week, they kept GDP forecasts unchanged at 2.76 percent.

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