Itaú BBA - Evening Edition – Inflation came in slightly above expectations in Brazil

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Evening Edition – Inflation came in slightly above expectations in Brazil

April 25, 2019

The industrial prices component surprised to the upside

Talk of the Day


April’s IPCA-15 inflation came in at 0.72%, above our call (0.69%) and the market’s (0.67%). The monthly change was mainly driven by an increase in food (1.28%) and oil prices (3.22%) components. In year-over-year terms, inflation advanced to 4.72% (our call: 4.68%; mkt: 4.65%) from 4.18% in the previous month, influenced by base effects that are expected to persist for the next month. Compared to our call, the services component printed as expected, especially the core measure, which is still suggesting comfortable levels for inflation. Additionally, industrial prices surprised to the upside (7 bps higher than our call). The diffusion index (which measures the share of products with positive price changes) remained at 62.5% in the month.** Full story here.

On external accounts, the current account posted a deficit of $ 494 million in March, below our estimate (USD 500 million surplus) and market expectations ($ 100 million deficit). Compared to our forecast, the surprise was concentrated in the income account, with higher than expected expenses related to profits and dividends. The current account deficit remains at a low level. For the coming years, we maintain our vision of a gradual increase in the current account deficit, but without compromising the sustainability of external accounts. In the financial account, direct investment in the country (DIC) added up to $ 6.8 billion, below our expectations ($ 7.5 billion) and the market consensus ($ 7.9 billion). However, DIC accumulated over 12 months remains at a historically high level: $ 89 billion, or 4.7% of GDP. Direct investment in the country continues to be the main source of financing for the current account deficit.
** Full story

According to FGV, consumer confidence declined another 1.5 p.p in April, after a strong decline in March. The negative result was mainly driven by the expectations index, which fell 2.7 p.p, while current conditions increased 0.5 p.p.

Tomorrow’s Agenda: FGV’s confidence indexes for April on the construction and retail sectors will be released at 8:00 AM. The Central Bank’s Credit Report regarding March’s data will see the light tomorrow.


Industrial and retail confidence remained in optimistic ground in March, posting gains over the twelve-month period. According to think-tank Fedesarrollo, industrial confidence was 3.0% in March (0 = neutral), up from 0.2% one year earlier (5.1% in February). Compared to March 2018, there was an improvement in the expectations for production in the upcoming quarter (up 3.2pp to 35.7%), while actual volume of orders was viewed less unfavorable (moving from -27.8% to -22.0%). According to our seasonal adjustment, industrial confidence was broadly stable from February. Meanwhile, retail confidence came in at 27.5% (24.6% in March 2018; 31.8% in February), with the annual gain evenly explained by all three sub-indexes: a reduction in inventory levels, better expectations of the economic situation in the coming semester and the evaluation of the current situation. Overall, upbeat business sentiment levels, low inflation (aiding real wage growth) and low and stable interest rates will likely support the activity recovery to 3.3% this year (2.7% for 2018).


Retail sales surprised to the upside, but grew at a below trend pace. Retails sales increased 1.8% yoy in February (from 0.9% in January); the figure was above our forecast and market expectations (0.6%). Although retail sales accelerated in February (compared to last month), it grew at a below trend pace (from an average growth of 2.4% in 2018). At the margin, retail sales momentum remained weak. Using seasonally-adjusted figures, retail sales increased 1.2% mom in February (from 2.7% in January). Still, the quarter-over-quarter annualized growth rate was -6.1% (from -6.7% in January). We expect private consumption to moderate its pace in 2019 (relative to 2018), as the U.S. deceleration and uncertainties facing the economy curb GDP growth. In this context, employment is weakening. However, recent real wage increases are a buffer for activity. Lower inflation and minimum wage increases, amid a still-tight output gap, are the factors boosting real wages.
** Full story

Tomorrow’s Agenda: At 10:00 AM, INEGI will publish February’s monthly GDP proxy (IGAE), which we forecast at 0.9% yoy (after growing 1.3% in January). At the same time, INEGI will announce March’s trade balance. Manufacturing exports likely slowed down, reflecting weaker external demand. In turn, we expect non-oil imports also deteriorated, reflecting some deceleration of internal demand.  


Tomorrow’s Agenda: The Central Bank will hold its third monetary policy meeting of 2019. With sluggish activity, subdued inflation pressures and a looser global monetary policy, we expect no change of the status-quo, keeping rates on hold at 4.25%.

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