Brazil Flash Report - IPCA-15 is 1.2 % in October

IPCA-15 kept high in October, reaching 1.2 % in October (vs 1.0% in September). The index rose to 10.3 % (YoY), the highest since feb-2015. Known as the Inflation preview, IPCA-15 measures the same basket of IPCA, but from day 15 of the previous month to the day 15 of the current month.

Even though the rise in prices were distributed among almost all itens, the ones that pressed the inflation on the latest months kept rising, transport (2.06%), housing (1.87%) and food and beverages (1.38%). As services fully reopen, we believe it's depressed prices will keep rising in order of match up the rise of its costs, adding inertia to the rise of the prices.

Undervalued BRL, higher prices for oil crude and increasing fiscal risks will keep pressing the inflation in the short term. We are updating our inflation estimation for 2021 to 10.3 %, from 9.5%. For 2022, we believe inflation will not convert fully to the it's target (3.25 %), and it will end up at 4.4 %. We believe that the Central Bank will need to speed up the pace of the adjustment of the basic interest rate, in order to keep expectations under control. We expect a rise of 1.25%, but we could no discard a 1.5 % rise in its next reunion this week.