Brazil’s inflation not cooling down fast enough

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Inflation in Brazil has eased off from its painful peak in 2021-2022, but mounting evidence suggests that the forces pushing prices higher remain stubborn, which could make it difficult to bring price increases back to within the government’s target.

The IPCA-15 consumer price index — the country’s mid-month inflation measurement and known to be a reliable predictor of official rates — came in at 0.76 percent in February, above market expectations. 

Higher figures were to be expected to some extent, as the beginning of Brazil’s academic year was bound to enhance costs on tuition fees. Still, there are worrying signs for the immediate future of Brazilian inflation.

Looking at the 12-month comparison, inflation is going down — but that is more to do with the spiraling prices increases of last year rather than a reflection of current trends. In fact, the IPCA-15 has been rising since August 2022, suggesting that the effects of electioneering measures enacted by the Jair Bolsonaro government last year are waning. 

Tax exemptions on fuels are set to stop, meaning prices at the pump are set to go up from March onwards.

Official inflation has cooled down in the seven months through January, but the country’s consumer price index is not falling as quickly as it was previously, being just 0.13 points lower than in November 2022. Moreover, inflation remains widespread. Clothing was the only segment that saw prices fall in January.

In the latest Focus Report, a weekly survey by the Central Bank with top-rated market agents, year-end inflation expectations have gone up for the tenth straight week, now standing at 5.89 percent, well above the government’s 3.25 percent goal.

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