Brazil: CPI brings good news, but demand-sensitive services inspire caution.

The performance of demand-responsive services will play an important role in determining to what extent the Central Bank will adjust the Selic rate, currently at 10.75% per year.

In March, the indicator rose by 0.16%, a much smaller variation compared to February’s 0.83%, and below the consensus of analysts surveyed by the Central Bank, which was 0.24%. There was a significant deceleration in home food, industrial goods, and administered prices, with subdued core inflation and less widespread inflation.

Over the 12 months through March, the IPCA accumulated an increase of 3.93%, below the 4.5% until February. This year’s target is 3%, with a tolerance range of 1.5 percentage points.

The average of the five core measures closely monitored by the Central Bank (BC) stood at 0.15%, after rising by 0.5% in the previous month, according to MCM Consultores Associados.

Measures aimed at eliminating or reducing the influence of the most volatile items, the cores attempt to provide a picture of inflation without the weight of the strongest price shocks. Over 12 months, the average of the five cores decreased from 4.01% to 3.79%.

The behavior of home food prices helped in March. The group saw an increase of 0.59%, after rising by 1.12% in February and remaining above 1% for three months, according to MCM’s calculations. It’s not a small variation, but it confirms the loss of momentum in the inflation of products that carry significant weight in the consumption basket of the poorest.

Industrial goods, on the other hand, experienced a decrease of 0.14% in March, after a 0.23% increase the previous month. As for administered prices (such as gasoline and public tariffs), which had risen by 0.88% in February, they advanced by 0.25% last month. The modest increase in gasoline prices, by 0.21%, contributed significantly to this movement – in the previous month, it had surged by 2.93%.

The result of the IPCA for March showed a more benign picture for inflation, in line with more interest rate cuts by the Central Bank (BC).

However, the performance of demand-responsive services will play an important role in determining to what extent the BC will adjust the Selic rate, currently at 10.75% per year. While a few months ago the prevailing bet was a reduction to 9%, there are currently more economists betting on the end of the easing cycle with the rate at 9.5% or even a bit higher.