Brazil and Mexico register faster than expected inflation

Official data released on Tuesday showed Brazil prices rose 0.55% in mid-January from a month earlier, above analysts’ median estimate of 0.51%. Mexico’s inflation stood at 0.46% during the same period, above the forecast of 0.39%, while core inflation also rose beyond projections.

Officials in the major Latin American economies are keeping their guard up as they fight to bring inflation to their targets. It is expected that Mexico deliver its 14th consecutive key rate hike next month, extending its record tightening cycle. Although the central bank of Brazil has halted tightening, its board members remain vigilant about rising cost-of-living expectations as the new government doles out billions of dollars in additional spending.

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The monthly inflation of Brazil it was buoyed by a 1.1% rise in health care, though transportation and housing posted much smaller gains than before. Annual inflation eased slightly to 5.87%, well above this year’s target of 3.25%.

Before taking office on January 1, President Luiz Inácio Lula da Silva won congressional approval to increase the ceiling on public spending, allowing an additional spending of 168 billion reais ($32 billion) this year. . Most of the funds are earmarked for welfare programs for the poor.

Since then, the Brazilian president has questioned the importance of the central bank’s independence and criticized his inflation target for being too low. The next rate decision will take place on February 1.

“Recent discussions about a possible revision of the inflation target and the interference in the election of the new central bank directors worry the market, since they can weaken the power of monetary policy, reducing its credibility”said Rafaela Vitoriachief economist at Inter Bank.

The measurements of Lula They have roiled financial markets as economists brace for consumer price pressures as federal tax breaks, instituted by the previous administration, expire.

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Mexico’s anti-inflation pact

Meanwhile, the Mexican government has implemented measures in an attempt to curb consumer price increases. It recently extended an inflation pact focused on ensuring access to affordable staples on supermarket shelves.

In Mexicoprocessed foods and beverages led the acceleration in inflation as some companies raised prices earlier in the year and a higher excise tax was imposed on soft drinks, it said Gabriel Casillaschief economist for Latin America at Barclays Plc.

In the first two weeks of January, annual inflation was 7.94%, above the 3% target. Core inflation, which excludes volatile items such as fuel, accelerated to 8.45% year-over-year, above the median estimate of 8.32%. The measure, which is closely followed in Mexicohad been slowing down since November.

“We continue to hope that Banxico will be able to disassociate itself from the Fed at its next monetary policy meeting on February 9, in which we expect the Board to deliver a final hike of 25 basis points”said boxes.

Banco de México cut its tightening cycle in December, raising rates 50 basis points after four consecutive 75 basis point hikes, promising to raise borrowing costs again. His February 9 Board meeting will be the first for the new lieutenant governor. Omar Mejia Castelazoa surprise election whose nomination was confirmed by lawmakers last week.

By Andrew Rosati and Max de Haldevang