Brazil’s annual inflation slowed much more than expected in May, hitting the lowest level in two and a half years and piling pressure on the central bank to ease monetary policy in coming months.
Official data released Wednesday showed consumer prices rose 3.94% from a year earlier, less than all forecasts in a Bloomberg survey of analysts that had a 4.04% median estimate. Monthly inflation stood at 0.23%.
Brazil was more aggressive in raising rates than just about anywhere else. With inflation at 3.94% they have close to a 10% positive real rate. The central bank has been adamant they would not cut rates if the government embarks on irresponsible spending. That resulted in the da Silva administration agreeing to cap public sector wages.
As the outlook for inflation improves and rates come back down, consumer activity should improve. The iBovespa Index continues to firm inside the two-year range and the Brazilian real is testing the upper side of a three-year base formation.
Mexico’s Peso continues to trend higher against the US Dollar and the stock market is on the cusp of breaking out to new all-time highs in nominal terms. Mexico remains the country most likely to benefit from the process of reshoring or China+1 manufacturing.