Itaú BBA - February’s inflation slightly above consensus in Brazil

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February’s inflation slightly above consensus in Brazil

March 13, 2019

Our preliminary forecast for the IPCA in March is 0.51%, with the year-over-year change picking up to 4.33%

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Brazil

February’s IPCA inflation came in at 0.43%, broadly in line with our forecast (0.42%) but above the market’s expectations (at 0.38%). The index rose 0.32% in January and is up 0.75% year-to-date. The year-over-year change increased to 3.89% from 3.78%. Food and beverages (0.19 p.p.) and education (0.17 p.p.) provided the biggest upward contributions during the month, while transportation and apparel provided negative contributions (-0.06 p.p. and -0.02 p.p., respectively). Our preliminary forecast for the IPCA in March is 0.51%, with the year-over-year change picking up to 4.33%. For the full year, we expect the IPCA to advance 3.6%.
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Day Ahead: January’s industrial production will come out at 9:00 AM, for which we forecast a slight decline of 0.1% mom/sa (-1.2% yoy).

Chile

A more gradual monetary normalization cycle is expected, following weaker growth momentum and persistence of low inflation, according to the central bank’s survey. Analysts continue to see only one more 25bp hike this year (to 3.25%) but it is now expected sometime in the last third of the year (rather than before August, as was the case last month). The policy rate is then seen stable at 3.25% during the first few months of 2020 (3.5% previously). Nevertheless, the medium-term outlook for the normalization process is unchanged with the policy rate reaching 3.75% in 23 months. Despite inflation surprising to the downside in February, forecasts were unchanged: 2.7% for this year (Itaú: 2.6%), and 3% for next year (also the 23-month expectation). Hence, the market continues to see the low annual inflation prints at the start of this year as a transitory occurrence. Growth forecasts were ticked down once more by 0.1pp to 3.4% for this year (Itaú: 3.2%) and for 2020. We believe that weaker activity momentum at the beginning of the year, short-term uncertainty of inflation dynamics and still elevated external risks support a more cautious central bank.

Mexico

Day Ahead: At 11:00 AM, the Statistics Institute (INEGI) will publish January’s industrial production. We estimate industrial production decreased 2.0% yoy (from -2.6% in December).



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