Investing.com — Brazil’s annual inflation rate in early January decelerated less than economists had anticipated, according to official data released on Friday. This development strengthens the probability of the central bank increasing interest rates by 100 basis points in the upcoming week.
The country’s consumer prices, tracked by the IPCA-15 index, rose 4.5% in the year leading up to mid-January, as reported by the statistics agency IBGE. This rate of inflation marks a decrease from 4.71% in the previous month, but it remains higher than the 4.36% that economists had forecasted.
Analysts at Capital Economics shared their outlook on the situation: “The upshot is that we expect a 100bp hike next week and another in March, taking the Selic to 14.25%. So long as the real continues to stabilize, fiscal fears don’t flare up again, and inflation eases further, we think that will prove to be the end of the tightening cycle. But the risks are squarely tilted to the upside.”
The central bank of Brazil has been dealing with a complex economic environment characterized by strong economic activity, a strained labor market, and uncontrolled inflation expectations. This situation persists despite predictions of a steeper rate path throughout the current year.
In a bid to achieve the central bank’s 3% inflation target, policymakers increased the benchmark interest rate by a full percentage point to 12.25% in December. They also indicated that similar increments could be expected for the following two meetings.
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