Brazil Inflation Seen Good for Fixed Income

Brazil’s IPCA inflation rate eased to 0.54% in January from 0.74% in December, below expectations and bullish for fixed income. A decline in food and fuel will give relief to macro economists fretting over region-wide price increases. “The lower-than-consensus IPCA inflation is good news for local fixed income market, which has been rallying on the back of lower inflation releases for February,” says Goldman Sachs. “This should also at least contain, and possibly even reduce expected IPCA inflation for both 2008 and the next 12 months,” it adds. However, it sticks to the view that the Copom will have to raise the Selic to curb credit growth and domestic demand expansion to avoid breaching IPCA targets in 2008 and 2009. But it sees the probability of a rate hike in March as low.