March inflation a good omen for Brazilian economy

Due to seasonal effects, a cooling of Brazil’s headline inflation rate in March was already expected. School fees, taxes, and utility bills, among other things, are usually adjusted in the first quarter of the year. 

Still, the country’s official consumer price index, measured by the Brazilian Institute of Geography and Statistics (IBGE), came in at 0.16 percent, way below Bloomberg and Broadcast’s median forecasts of 0.25 and 0.24 percent, respectively. The 12-month rate now stands at 3.93 percent, marking the continuity of the Brazilian economy’s disinflationary process. 

A provisional decree signed by President Luiz Inácio Lula da Silva on Tuesday, expanding subsidies to the renewable energy sector and allowing the government to bring forward payments from energy giant Eletrobras to the country’s energy development fund, could give another boost to this process. It could lead to a temporary reduction in electricity bills of between 3.5 and 5 percent in 2024.

On the other hand, persistent inflation in the services sector and the somewhat unclear outlook for food prices may challenge the rate’s convergence to the Central Bank’s target of 3 percent.

Q1 under control

In addition to seasonal aspects, the less intense hike in food and fuel prices in March than in the previous months greatly contributed to the overall slowdown in the IPCA. Transport group prices were the main downward influence last month, falling 0.33 percent and generating a 0.07 percentage point decline in the index. 

This was due to the drop in airfare prices and an increase of just 0.21 percent in gasoline — compared to 2.93 percent in February. 

However, the gap between national and international prices is intensifying. At the end of 2023, Brazilian gasoline prices were 5 percent higher than international benchmarks. They are now 16 percent lower than international fares. With the Brent-type barrel rising from USD 75 to 90 this year, the expectation is that Petrobras will have to...