Brazil registers steepest monthly deflation in over quarter of a century

(C) Reuters. A costumer looks for drinks at a supermarket in Rio de Janeiro

By Jamie McGeever

BRASILIA (Reuters) – Brazil experienced its most aggressive deflation for at least 26 years in May, according to a mid-month measure of consumer prices released on Tuesday, as the coronavirus crisis triggered a collapse in transport and related prices.

The monthly rate of Brazil’s IPCA-15 consumer price inflation in the month to mid-May slumped to -0.59% from a revised -0.01% a month earlier, the lowest rate for any month since the “Real Plan” was launched in 1994 to end the country’s history of hyperinflation.

That was also a bigger fall than the median estimate in a Reuters poll of economists of a 0.45% decline, and helped reduce the annual rate of inflation to 1.96%, also below forecasts of 2.10%.

The annual rate is now significantly below the central bank’s official 2020 consumer price inflation target of 4.0%, signaling it can follow through on its steer that it will cut interest rates again at its next meeting in June.

The accumulated rate of inflation so far this year is 0.35%, IBGE said.

Transport costs fell 3.5% in the month, IBGE said, providing a 0.63% impact on the overall month-on-month decline in prices.

Within that, fuel costs slumped 8.5%, including a 10.4% fall in ethanol prices, while air fares plunged 27.1% in the month, according to IBGE.

Of the nine groups of goods and services surveyed, five registered outright deflation in May from the month before, IBGE said, including housing, food and drink, and household goods.

Fabio Kanczuk, economic policy director at the central bank, said last week that the consensus among policymakers was that the coronavirus crisis would be extremely deflationary.

The economy is expected to register its steepest annual downturn this year since records began in 1900. The latest consensus in the central bank’s weekly FOCUS survey of economists is for a 5.9% contraction.