Inflation in Brazil accelerates as central bank reiterates pace of rate cuts

The annual inflation of Brazil accelerated in mid-September to 5.00%, data from the IBGE statistics institute showed on Tuesday, in line with market expectations, at a time when the central bank indicates that it will maintain its current pace of monetary relaxation.

In Latin America’s largest economy, the IPCA-15 consumer price index gained strength compared to the 4.61% reading seen at the end of the previous month, but almost matched the 5.01% forecast of economists polled by Reuters.

This is likely to further push back the stance of the central bank to cut its benchmark interest rate at a pace of 50 basis points per meeting, even though government officials have suggested the bank could accelerate the pace this year.

He central bank This month, it made its second consecutive cut of 50 basis points, to bring the rate to 12.75%, and signaled the possibility of further reductions of the same magnitude, due to the fact that some of the members of its committee that establishes monetary policy maintain the caution in the face of economic activity and the resistance of the labor market.

A further rate cut would require substantial positive surprises in inflation, the Central Bank has said, and that is not what the mid-September figures showed.

“These inflation data will have given ammunition to the Copom hawks and support our view that the monetary easing cycle will continue in steps of 50 basis points until the middle of next year.“, said William Jacksonchief emerging markets economist at Capital Economics. He hopes that Copom will then adopt reductions of 25 basis points, to place the Selic rate at 9.5% at the end of 2024.

According to him IBGEconsumer prices rose 0.35% in Brazil until mid-September, compared to 0.28% the previous month and slightly below the 0.38% expected in a Reuters poll.

The rise was mainly due to rising transportation costs as the price of gasoline increased, according to the statistics agency, while housing costs and personal expenses also increased. The decline in food and beverage prices partially offset these increases, the IBGE.