Brazil’s Annual Inflation Surges to Four-Year High ahead of Rate Hike
Brazil’s annual inflation surged to a four-year high in February, leaving the central bank under strong pressure to deliver an outsized interest rate increase at next week’s policy meeting.
Annual inflation sped up to 5.20% in February, the highest level since January 2017 and well above this year’s target of 3.75%, the national statistics agency reported
Borrowing costs were cut to an all-time low of 2% in 2020, while billions of dollars worth of emergency spending were pumped
Brazil’s annual inflation surged to a four-year high in February, leaving the central bank under strong pressure to deliver an outsized interest rate increase at next week’s policy meeting.
Annual inflation sped up to 5.20% in February, the highest level since January 2017 and well above this year’s target of 3.75%, the national statistics agency reported on Thursday. On the month, a spike in fuel costs led consumer prices to rise 0.86%, above all estimates in a Bloomberg survey.
The inflation reading, the last major release before central bankers’ rate-setting meeting, lays bare the growing urgency to tamp down prices. Swap rates on short-term contracts rose after the data as investors priced in chances of a 75-basis point borrowing cost hike. Policy makers had already signaled plans to raise the Selic sometime this year, but public spending concerns and a tanking currency are bringing investor bets forward.
What Bloomberg Economics Says
“Headline Brazilian inflation surprised on the upside and underlying measures remained high at the margin in February. High commodity prices amid sustained currency weakness should keep the near-term inflation outlook -- and monetary policy -- under pressure."
--Adriana Dupita, Latin America Economist
Borrowing costs were cut to an all-time low of 2% in 2020, while the administration of President Jair Bolsonaro pumped billions of dollars worth of emergency spending into the economy. Those policies have helped to keep inflation under pressure as congress prepares to pass a second round of pandemic relief as soon as Thursday.
Transportation costs jumped 2.28% in February on a 7.09% surge in fuels, according to the national statistics agency. Education prices rose 2.48% amid the start of the academic year, while food and beverage inflation eased to 0.27% from 1.02% in January.
Globally, oil prices have been on a tear since November as demand picks up. In Brazil, Bolsonaro responded to cost increases by firing the head of the head state-run oil company Petroleo Brasileiro SA, more commonly known as Petrobras, prompting concerns of more government intervention.
Now a worsening Covid-19 outbreak, combined with growing political risks and policy errors have lead investors to dump Brazilian assets, worsening the inflation outlook, said Andres Abadia, chief Latin America economist at Pantheon Macroeconomics. The real has lost roughly 9.8% over the past three months, making it the worst performer among major currencies.
The “sell-off this year has been significant," Abadia wrote in note to clients on Thursday. “The central bank has become increasingly concerned."
(Except for the headline, this story has not been edited by Scrabbl staff and is published from a syndicated feed.)
