Brazil’s Inflation Update

BRASILIA (Reuters) – Brazil’s consumer prices rose less than expected for mid-December, according to the government statistics agency IBGE. However, this outcome does not lead economists to expect a better inflation outlook.

Annual inflation reached 4.71% in mid-December, exceeding the 3% target with a tolerance range of 1.5 percentage points, or up to 4.5%. Economists polled by Reuters had predicted it would hit 4.82%.

The consumer price index climbed 0.34% in the month to mid-December, down from 0.62% in the previous period and below the 0.45% increase forecasted by the Reuters poll.

XP (NASDAQ:XP) economist Alexandre Maluf attributed the significantly lower-than-expected monthly reading to a negative surprise in airfares, yet noted that it “does not change our view that the inflation outlook remains quite challenging.”

“All key indicators sensitive to monetary policy are well above the 3% target,” he stated, predicting that prices for industrial goods will accelerate in the coming quarters due to the significant weakening of Brazil’s currency amid fiscal challenges.

According to IBGE, food and beverage prices saw the largest increase both monthly and annually, driving the overall consumer price increase. In contrast, housing costs experienced a month-on-month decrease.

These figures follow the central bank’s acceleration of monetary tightening earlier this month, executing a 100 basis-point hike that raised interest rates to 12.25% and signaling similar increases at its next two meetings.

Policymakers emphasized that the current scenario—marked by market expectations and inflation projections exceeding the target, coupled with a stronger-than-expected economy—warrants a more contractionary monetary policy.