Brazil Macro Watch: inflation, GDP outlook, tax collection

Bnamericas Published: Tuesday, June 25, 2019

Brazil's IPCA inflation index reached 3.84% in the 12 months through mid-June compared with 4.93% through mid-May, according to statistics bureau IBGE.

The mid-June reading saw inflation move back into the central bank's target range of 4.25%.

The CPI slowdown was attributed to a drop in food prices and lower transportation costs.

The current scenario of benign inflation and a weak economy has led to strong speculation that the central bank will cut the Selic benchmark interest rate, which is at a record-low of 6.5%.

“We expect the Selic rate to reach a new record-low of 5.5% by December and to remain at that level throughout 2020. We do not rule out a larger (-50bp) initial move and/or a Selic rate cut already at the July 31 meeting, particularly if the social security reform bill clears the first of the required two Lower House floor votes before the July 17 recess and the content of the reform is perceived to be solid enough to keep financial markets well anchored,” said Alberto Ramos, an economist at Goldman Sachs.


The Brazilian economy has performed poorly in the first four months of the year.

The economy contracted in Q1 and this was followed by a decline in economic activity in April.

In the minutes from its last monetary policy meeting, the country's central bankers show no hope of a quick turnaround.

“After a slight decline in the first quarter of 2019, as a result of this loss of dynamism and some occasional shocks, Gross Domestic Product (GDP) is expected to remain relatively stable in the second quarter,” reads the minutes from last week's meeting.

Tax collection

Taxes collected by the federal government totaled 638bn reais (US$167bn) in January-May, an increase of 1.28% from the same period of 2018.

In May alone, the government saw tax collection rise by 1.92% year-on-year to 113bn reais.

Last month's increase took place thanks to a slight recovery in retail sales, according to Claudemir Malaquias, an auditor at the country’s tax authority.

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