05/04/2024 – 12:01
The downward surprise with April’s IPCA-15 suggests more room for monetary policy in the short term. With the Central Bank’s “data dependent” stance, the assessment of some economists is that the result keeps on the table the possibility of a 0.5 percentage point cut in the Selic rate at the next Copom meeting in May, although the risk of 0.25 has grown recently.
The IPCA-15 not only fell short of expectations – at 0.21%, against a consensus of 0.29% – but also showed a more benign composition. Both the underlying services (0.40% to 0.38%) and the core average (0.23% to 0.19%) slowed and were lower than the market medians of 0.41% and 0. 25%, in that order.
“Inflation slightly lower than expected in Brazil for the first half of the month and signs of relief in pressures on underlying prices may be enough to give the Copom room to cut the Selic by 0.5 percentage points at the next meeting”, says Capital Economics’ chief emerging markets economist, William Jackson, in a report.
In the last weeks of April, the market saw the chance of the BC maintaining the pace of cutting the Selic rate by 0.5 percentage points decreasing, after a series of statements by the president of the municipality, Roberto Campos Neto. He has highlighted that the Copom’s “forward guidance” – which suggested a drop of this magnitude in May – is conditional and that, if uncertainty remains high, a reduction in the pace may be appropriate.
During an event on Friday, the 26th, promoted by the Young Presidents’ Organization, in Brasília, Campos Neto stated that the IPCA-15 was a little better than expected. But he reinforced that, for the BC, the important thing is to see the trend of inflation convergence towards the target being confirmed.
In a note sent to clients, the chief economist at B.Side Investimentos, Helena Veronese, states that the relief in cores and underlying services in the IPCA-15 signals a benign composition for inflation. As a result, the possibility of a 0.5 percentage point cut in the Selic rate in May “remains on the table.”
“Whether the pace is maintained or not, in our view, will depend on the external scenario and the fiscal scenario here – highlighted earlier today by Roberto Campos Neto as ‘the most difficult part’ in the country”, says the analyst. “From the point of view of domestic inflation alone, however, we understand that there is, indeed, room to maintain the pace of cuts.”
Banco Bmg’s chief economist, Flávio Serrano, reiterated his expectation of a 0.5 point cut in the Selic at the next Copom meeting, but said that the IPCA-15 does not interfere with this perspective. According to the analyst, the worsening of the balance of risks in recent weeks does not allow a smaller cut of 0.25 points to be ruled out.
“The IPCA-15 clearly showed the face of inflation that we have: industrial goods running low, food accommodating, but slowly, services for airfare low and underlying services and items linked to the labor market still running strong. It’s in line with expectations,” he says.
Uncertainties
Other analysts say that the IPCA-15 does not change the assessment that the Copom should reduce the pace of cuts in May. According to Quantitas economist João Fernandes, inflation was in line with expectations, with downward surprises concentrated in idiosyncratic items, while inflation in services – and especially in labor-intensive services – remains incompatible with the convergence of the IPCA towards the goal.
“This slowdown is expected, but it is still an inconsistent pace for low inflation for the year,” says Fernandes, who maintained the expectation of a slowdown in the pace of cuts to 0.25 points in May. He expects a second cut of 0.25 points in June, which would take the Selic rate to 10.25% at the end of the cycle.
In the same vein, PicPay economist Igor Cadilhac says that underlying services continue to be a source of concern, due to low unemployment, a tight product gap and readjustments in the minimum wage. “Looking at all these factors, it is difficult to imagine that there will not be pressure on the underlying services. It is the main point of uncertainty and which most affects the BC’s decision”, says the analyst, who has in the scenario three more cuts of 0.25 points in the Selic rate.
#data #dependent #IPCA15 #chance #0.5PP #cut #Selic #alive