Brazil's inflation rate slowed sharply in March to below 10 percent a year, the lowest in nine months, although it still remained well above the government's target despite a severe recession and one of the world's highest interest rates. Consumer prices as measured by the benchmark IPCA index rose 9.39 percent in the 12 months through March, down from 10.36 percent the previous month, statistics agency IBGE said on Friday.
The central bank's inflation target is 4.5 percent, a goal last achieved in August 2010. "Times of two-digit inflation are over," said BBVA economist Enestor dos Santos in a note.
Prices rose 0.43 percent in March from February, slightly below the median market forecast in a Reuters poll. It was the lowest rate for March since 2012. Lower energy rates and mobile phone bills helped offset another sharp increase in food prices, IBGE said, in what is likely to be the beginning of a long period of slowing inflation in Brazil as unemployment rises and an increasing number of businesses file bankruptcy requests. The central bank expects price rises to slow this year to near the top end of the government's tolerance range, at 6.5 percent. The recent strengthening of Brazil's currency, the real, versus the US dollar led to expectations that Brazil's central bank would start cutting interest rates later this year.
Yields on rate futures fell sharply as traders added bets on upcoming rate cuts. Policymakers have ruled out easing policy in the short term however, saying inflation expectations need to fall closer to the inflation target before such a move is considered. "Inflation will continue to ease, but should only converge to within the target range in 2017," BBVA's Santos said. Brazil's inflation soared last year after President Dilma Rousseff's government pushed through a string of unpopular tax and energy price increases in a bid to plug a massive budget deficit. With her approval ratings near record lows, Rousseff now faces an impeachment process in Congress.
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