Brazil

Brazil's broad consumer price index (IPCA) came in at 6.5% y-o-y in December, just back within the upper limit of the central bank's target band of 4.5%-6.5%. Though we believe supply side pressures should abate somewhat in 2012, as our Commodities team forecasts a slight moderation in commodity prices, we believe demand side inflationary pressures could return in H212 on the back of extensive monetary easing, as well as a third round of quantitative easing in the US. These factors inform our end-2012 inflation rate forecast of 5.5% y-o-y, as well as our SELIC interest rate forecast of 10.0%.

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