Macroeconomic Forecast Brazil

July 2006 | Macroeconomic Forecasts

Broad inflation (as measured by the IPCA indicator) came in at 4.03% y-o-y in June, the lowest outturn since June 1999. On the back of benign inflation data so far this year, we have decided to downwardly revise our year-end IPCA forecast to 4.3%, from 4.7%. This would represent a significant decline from 5.7% in 2005, and would bring the annual rate under the Banco Central do Brasil (BCB)'s 4.5% year-end target. We are also bringing down our 2007 target, but by just 1 percentage point, to 4.5%. While we believe that the stable real and the central bank's inflation-fighting mandate, have helped anchor inflation expectations, we still see some risk that more rapid economic expansion this year and next will contribute to a slight uptick in prices in 2007.

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