By Gabriel Burin
(Reuters) - Brazilian inflation probably declined to an eight-month low in May versus April, opening a much anticipated window for interest rate cuts in the second-half of the year, a Reuters poll of economists predicted.
On a 12-month basis, consumer price data due Wednesday are expected to show the smallest rise in more than two years, adding to evidence for the potential start of an easing cycle from a reticent central bank.
The IPCA inflation index likely increased 0.33% on the month in May, its softest reading since September 2022, and 4.04% in the 12-month gauge, the lowest since October 2020, according to median estimates of 20 analysts polled from May 31 to June 5.
"Recent fuel price cuts will start to affect inflation in the May print. We expect -1.5% m-o-m for gasoline, with a contribution of -7 basis points to the headline," UBS economists wrote in a report.
Brazilian state oil company Petrobras has adopted a new fuel pricing policy described by President Luiz Inacio Lula da Silva as "a victory for the people" that is sharply lowering costs for motorists.
At the same time, thanks to this year's bumper crops, additional disinflation is coming from the food industry, with unexpected moderation of price markups in supermarkets giving consumers more relief at the check out.
The hoped-for confirmation of last month's slowdown to just above 4.0% will likely be interpreted as the opening of a window for rate cuts that officials in Lula's government have been waiting for.
Banco Central do Brasil's hawkish stance continues to attract cash to bank accounts paying steep interest on the benchmark rate of 13.75%. This has reduced funding for industrial production, which keeps underperforming.
What remains unclear is how fast the central bank's orthodox leadership will act in the days and weeks following the new inflation figures, as governor Roberto Campos Neto looks for indisputable signs of lower inflation expectations.
While acknowledging a better outlook, monetary policymakers are still worried about inflation forecasts exceeding this year's official goal of 3.25%, with a tolerance margin of 1.5 percentage points.
One factor at play in persistently high projections is speculation Lula's team may push this month for a change in inflation goal timelines to justify prompt rate cuts, something a top bank figure seemed eager to dispel at an event this week.
In the central bank's own weekly macro survey among economists, the latest consensus for 2023 inflation stood at 5.69%. Stats agency IBGE will release May's data on Wednesday at 0900 local time (1200 GMT).
(Reporting and polling by Gabriel Burin; Editing by Jonathan Cable and Mark Potter)