BRL depreciation and higher-than-expected inflation in 1H point to deterioration in inflation outlook. Month-on-month IPCA inflation has systematically exceeded the one-month forward median market forecast for the entire first half of the year. Moreover, recent BRL depreciation will add unfavorable risk to inflation in the coming months. We estimate that BRL depreciation of a little more than 10% from May to June will add from 0.17 percentage point (pp) to 0.26pp to IPCA inflation over the next two quarters and from 0.35pp to 0.61pp in the next 12 months.
