This was the fastest monthly decline of the IGP-M index in 26 years, mostly due to a steep decline in the wholesale prices of grains such as soybeans and corn, FGV added. The IGP-M index, widely used in Brazil as a benchmark for annual contract revisions, rose 3.37 percent in the 12 months through April. Soy and corn prices slumped as farmers expect record crops this year, helped by favourable weather. Wholesale agricultural prices fell 4.3 percent in April from March, according to the IGP-M index. Producer prices of manufactured goods such as apparel and electronics dropped 0.85 percent from March. Falling wholesale prices in Brazil should reduce consumer inflation further in coming months, after it slowed from 10.7 percent in January 2016 to 4.6 percent in March. Lower inflation should in turn keep the door wide open for the central bank to continue slashing interest rates from 14.25 percent last year to an expected 8.5 percent by December, according a market survey.
"Inflation should fall as low as 3.2 percent by August," said Fabio Rom?o, an economist with consultancy LCA. The official inflation target is 4.5 percent. On top of lowering inflation, the bumper harvests are expected to have boosted Brazil's economic growth in the first quarter, ending the country's worst recession ever. They have also contributed to record trade surpluses. Economists in a Reuters poll expected a 1.0 percent decline in the monthly rate, according to the median of 22 forecasts.
Copyright Reuters, 2017