The further decline in inflation in Brazil, to 5.4% y/y in the middle of this month, was driven by lower food inflation, but core price pressures remain very strong. As a result, the release won’t ease the central bank’s concerns that inflation will fall towards target far too slowly for its liking. We think the first interest rate cuts are only likely to come in Q4 of this year, even if the decline in the headline rate only intensifies the government’s vocal demands for cuts to come sooner.
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