PREVIEW-Brazil inflation rate seen slowing sharply in May

WHAT: Brazil’s May IPCA consumer price index

WHEN: Wednesday, June 9, at 9 a.m. (1200 GMT)

REUTERS FORECAST:

Brazil’s benchmark IPCA consumer price index (BRCPI=ECI: ) is
seen rising 0.43 percent versus a 0.57 percent increase in
April, according to the median forecast of 20 analysts surveyed
by Reuters. Forecasts ranged from 0.4 percent to 0.49 percent.

FACTORS TO WATCH:

Food prices are expected to rise at a much slower pace in
May from April after a surge earlier in the year, helping to
ease inflationary pressures last month. Transportation costs
also are expected to have helped bring the IPCA index down in
May because of slower fuel price inflation.

“Despite that, more structural elements, such as services
prices and core (inflation) data, shouldn’t improve as much,
staying at uncomfortable levels,” said Diego Donadio, senior
Latin America analyst at BNP Paribas.

The IPCA figures will be released just hours before the
central bank votes on its next interest rate decision, with
most analysts expecting the benchmark Selic rate to rise by 75
basis points to 10.25 percent. For more see [ID:nSPG002929].

Policymakers use an annual inflation target as a guide in
setting rates. The 2010 target is 4.5 percent, plus or minus 2
percentage points.

MARKET IMPACT:

Analysts, in a weekly central bank survey released on
Monday, cut their forecasts for the IPCA in 2010 for the first
time in almost five months, suggesting that concerns over
consumer prices are easing.

Lower-than-expected May inflation figures could help push
yields on Brazil’s interest rate futures contracts (0#DIJ:: )
lower. Yields have been falling in recent weeks on expectations
a weak recovery in the global economy may not pressure
commodity prices and fan inflation.
(For Brazil statistics agency Website, where the IPCA data are
released, see: http://www.ibge.gov.br)
(For all Brazil economic data double-click: (ECONALLBR: ). For
upcoming data, see: (ECONBR: ))

Stock Market Advice

(Reporting by Vanessa Stelzer; Writing by Elzio Barreto;
Editing by James Dalgleish)

PREVIEW-Brazil inflation rate seen slowing sharply in May