(Bloomberg) -- Brazil’s annual inflation sped up roughly in line with forecasts in November, firming bets that the central bank will increase its pace of interest rate hikes at this week’s decision.
Official data released Tuesday showed consumer prices rose 4.87% from a year earlier, just above the 4.85% median estimate in a Bloomberg survey of economists. On the month, prices increased 0.39%.
The central bank is expected to quicken the pace of interest rate hikes on Wednesday to cool down Latin America’s biggest economy. Both robust government and consumer spending have jolted growth and sent cost-of-living increases soaring well above the 3% target.
Bad weather is also fanning prices. A record drought earlier this year hurt crops and drained water reservoirs at hydroelectric plants, causing energy regulators to increase power costs for some months.
What Bloomberg Economics Says
“The November CPI report will heighten policymakers’ concerns about Brazil’s near-term inflation outlook. Annualized core and underlying services price gains accelerated well above the target ceiling. With a tight labor market and a struggling currency, there’s little reason to expect near-term improvement. The latest inflation data give the central bank further grounds to accelerate its rate-hike pace on Wednesday.”
— Adriana Dupita, Brazil and Argentina economist
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A 1.55% jump in the price of food and beverages as well as a 0.89% gain in transportation costs, which were pushed up by more expensive airfare, drove November’s inflation. Meanwhile, housing costs fell 1.53% as increased rainfall in recent weeks helped bring electricity prices down, the statistics agency said.
But the energy relief has been overshadowed by a slump in Brazilian assets, which are tanking due to investor skepticism of President Luiz Inacio Lula da Silva’s efforts to shore up public accounts. The real has tumbled roughly 20% this year, in turn, driving up the cost of imports.
All told, economists now see inflation staying above target through 2027, proving a stern test for incoming central bank chief Gabriel Galipolo, who takes over in January.
“The risks are firmly skewed towards rates being raised even higher,” Jason Tuvey, Deputy Chief Emerging Markets Economist at Capital Economics, wrote in a research note. “Especially if the government fails to soothe investors’ fiscal concerns.”
--With assistance from Giovanna Serafim and Robert Jameson.
(Adds analysis in the fifth paragraph.)
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