Consumer prices in Brazil rose more than expected in May, data from statistics agency IBGE showed on Tuesday, with rising food costs helping to push annual inflation away from the central bank’s target. .
The data puts the monetary authority’s ongoing easing cycle at risk, economists say, with investors forecasting a pause in the rate-cutting process when policymakers reconvene later this month.
Prices measured by Brazil’s benchmark IPCA rose 0.46% last month, above market forecasts of 0.42%, according to a Reuters poll of economists, up from the previous month. increase of 0.38% in April.
Meanwhile, 12-month inflation in Latin America’s largest economy reached 3.93%, up from 3.69% in the previous month and above the 3.89% expected.
Eight of the nine groups surveyed by the IBGE expected price increases in May, with rising costs for food and beverages, as well as housing, having the biggest impact on the overall index.
The statistics agency noted that recent devastating floods in Rio Grande do Sul, an important agricultural state, contributed to rising food costs – particularly the more than 20% jump in potato prices.
“This is a poor quantitative and qualitative result overall, which will reinforce the central bank’s cautious stance,” said Alberto Valerio, senior economist at Lender Inter, betting that interest rates will remain unchanged during “next meetings”.
Policymakers at Brazil’s central bank have pledged to keep interest rates restrictive until inflation falls to meet the bank’s 3% target, which has a tolerance margin of plus or minus 1.5 percentage points.
In May, the bank cut its benchmark rate by 25 basis points to 10.50% after six cuts twice as large. Board members raised concerns about rising inflation forecasts for this year and next.
Galapagos Capital chief economist Tatiana Pinheiro said the latest inflation figures pave the way for borrowing costs to be kept unchanged at the bank’s next meeting, ending the easing cycle which started in August 2023.
She also said it was possible that board members would report in the meeting minutes “a higher likelihood of rising interest rates, mainly due to the weakening of the Brazilian real.” .
The Brazilian currency hit its lowest level in a year and a half against the US dollar on Monday, due to budget concerns and global uncertainties. (Reporting by Gabriel Araujo; Editing by Chizu Nomiyama and Shinjini Ganguli)
