Brazil and Mexico get little relief after inflation data

Official data released Thursday showed Brazil’s consumer prices rose 5.77% in January from a year earlier, down slightly from December, even as policymakers keep rates at 13.75%. Meanwhile, Mexico’s annual inflation accelerated to 7.91%.

Policy makers in both nations are counting on high rates and moderate growth to control inflation above target. Still, Brazil’s central bank is under pressure from billions of dollars in additional public spending and harsh criticism from President Luiz Inácio Lula da Silva. Meanwhile, the price data raises the odds that Mexico leaves the door open for further tightening.

Brazil’s central bank targets annual inflation of 3.25% this year, while Mexico’s target is 3%.

The price reports come as the general manager of Colombia’s central bank, Leonardo Villar, said in an interview that the region’s major economies are likely to maintain a tight monetary policy for an extended period, after exceeding their price targets. inflation for several consecutive years.

Core inflation in Mexico, which excludes volatile items such as fuel, accelerated to 8.45% from 8.35% the previous month. The move, which is closely watched by politicians, slowed down in December for the first time in two years.

Processed foods and beverages put pressure on inflation in January, recording a 1.25% jump from the prior month and a 14.1% increase from a year earlier. The nation’s central bank, known as Banxico, is expected to deliver a quarter-point hike on Thursday to push its key rate to a record 10.75%.

“The print reinforces our expectation of a slow trajectory of inflation towards its target”, said Pamela Díaz Loubet, Mexico economist at BNP Paribas SA. For the central bank, “this means that it will be difficult to talk about an end of the cycle”.

Too early

Brazil’s transportation costs rose 0.55% in January, compared to 0.21% in December, while communications prices rose 2.09% and food and beverages rose 0.59%. For its part, clothing fell by 0.27%.

Lula unleashed a fresh barrage of criticism of politicians after they kept the Selic rate unchanged last week, citing concerns about public spending and the reduction of exceptions to inflation.

The left-wing leader has vowed to reform the economy in his third term and says high borrowing costs are hurting investment and the nation’s poor.

The head of state described the decision as “shameful” and questioned the value of an autonomous central bank. These types of comments may backfire as traders bet that the monetary authority will not cut rates as soon as initially thought.

Brazil’s economic team is considering an early review of the country’s inflation targets in an attempt to defuse tensions between the Lula administration and the central bank, according to two government officials with knowledge of the matter.

“The main risk is related to the unanchoring of medium- and long-term expectations due to uncertainty about the course of structural economic reforms.”, Banco Santander SA economists Daniel Karp and Felipe Kotinda wrote in a note.

Meanwhile, the combination of simmering consumer prices and tight financial conditions is wearing down demand.

In a separate statement Thursday, Brazil’s statistics agency said retail sales fell 2.6% in December from the previous month, more than economists’ median estimate of a 0.8% drop. Sales increased 0.4% over the previous year.