Brazil Consumer Prices Fall the Most Since 1998 Amid Virus Rout

(C) Reuters. Brazil Consumer Prices Fall the Most Since 1998 Amid Virus Rout

(Bloomberg) — Brazil’s consumer prices in April tumbled the most in nearly 22 years on the back of plunging transportation costs, validating this week’s larger-than-expected interest rate cut.

The benchmark IPCA index fell 0.31% from March, more than the median estimate for a 0.24% decline from economists in a Bloomberg survey. In twelve months, consumer prices rose 2.40%, the national statistics agency reported on its website on Friday. The monthly drop was the biggest since August 1998, the agency said.

Brazil now joins Mexico in posting monthly deflation as the coronavirus pandemic brings Latin America’s two largest economies to a halt. The reading comes two days after Brazil’s central bank delivered a larger-than-expected rate cut and signaled another reduction is on tap. Policy makers also forecast consumer prices will end this year below the 2.5% floor of their target range.

On the month, transportation costs fell by 2.66% driven by falling fuel prices including gasoline, the national statistics agency reported. Meanwhile, food and beverage costs rose by 1.79%, representing the biggest inflation driver on the month.

Local governments are toughening restrictions on commerce and movement as the coronavirus death toll shows no sign of slowing. While helping to curb the spread of the virus, those measures are decimating activity and will hasten a double-digit drop in gross domestic product in the second quarter, according to Luciano Rostagno, chief strategist at Banco Mizuho do Brasil.

Crashing demand has helped soften the potential inflationary impact from a weak real, which plunged to a record low after the central bank’s rate decision on Wednesday.