Itaú BBA - Quarterly Inflation Report: revising the outlook

Macro Brazil

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Quarterly Inflation Report: revising the outlook

marzo 26, 2020

The inflation report shows forecasts that are consistent, in our view, with further rate cuts in 2020


For the version with all charts and tables, please open the attached pdf file
 

 The March 2020 inflation report shows forecasts that are consistent, in our view, with further rate cuts in 2020, not necessarily at the next Copom meeting in May. The document also indicates that the Selic rate may remain at levels close to the minimum for a considerable time, with an eventual increase only from 2021 onwards. In parallel, GDP growth was revised to 0% in 2020, a value above our own forecast (-0.7% ).

 The Inflation Report also presents short-term forecasts for inflation, from March to May. For this period, the Central Bank's figures are around 0.30 p.p. above ours. Also considering the risks arising from the pandemic of the novel coronavirus, it is clear that the BCB may end up with lower inflation than it currently projects.

 Regarding the studies presented, the highlight goes, given the current situation, to a box about COVID-19 effects in the world and in Brazil. Among other discussions, the study shows that Brazilian GDP growth tends to be more heavily influenced by growth in China than elsewhere. In another interesting box, the BCB presents a new daily indicator of financial conditions for Brazil – which recently registered its historical low (the most expansionary level), before the stress caused by the pandemic. Finally, we also highlight the breakdown of 2019’s inflation, according to which supply shocks (protein) and the BRL depreciation contributed to an increase of 1.35 pp in inflation compared to the previous year, while favorable inertia and low inflation expectations had a negative effect of 0.77 pp.


For the version with all charts and tables, please open the attached pdf file



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