Brazil is probably the country with the most closely tracked inflation indices, mainly because of the long history of hyperinflation as well as the emergence of privately sponsored indices to verify those produced by the government. The IPC-S is a weekly inflation index focused on consumer prices which allows investors to monitor inflation week by week to anticipate trends ahead of the monetary committee meetings. The next meeting is now less than a month away and inflation concerns are increasing.
The graph above shows the change in yearly inflation across Brazil’s seven major cities. Inflation was lower across the board, with the exception of Porto Alegre which was flat. This is a very positive change in trend given the increasing trend observed throughout January. If this trend persists in February, it is more likely that interest rates will be unchanged at the next monetary committee meeting in early March.
Investors in Brazil focused ETFs (e.g. EWZ, EWZS, BRF, DBBR) or the main emerging markets ETFs (e.g. EEM, VWO) which have Brazil exposures above 25%, will benefit from unchanged interest rates in Brazil. For now it is unlikely that rates will be reduced given the elevated inflation levels.
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