(Bloomberg) -- Brazil’s annual inflation eased in mid-June but remained above 12%, providing limited relief to the central bank’s cycle of interest rate hikes and President Jair Bolsonaro’s re-election plans.
Consumer prices rose 12.04% from a year ago, roughly in line with the 12.03% median estimate in a Bloomberg survey. On the month, inflation hit 0.69%, the national statistics institute reported on Friday.
Transportation costs rose 0.84%, which was less than the 1.80% reading the prior month but still represented one of the main drivers of the mid-June print. Price pressures proved to be widespread, with increases in all products and services surveyed, including jumps in clothing and healthcare.
Policy makers led by Roberto Campos Neto have set up another interest rate hike for August, adding to an aggressive cycle that’s already raised borrowing costs by 11.25 percentage points since March 2021. Cost of living increases have been propelled for months by supply-chain snags and higher global commodity costs. Complicating matters further, last week local state-controlled oil company Petroleo Brasileiro SA jacked up prices of gasoline and diesel.
Swap rates for the contracts due on January 2023, which show investor sentiment toward monetary policy at year’s end, rose 5 basis points in morning trading.
What Bloomberg Economics Says:
Inflation remains hot and widespread, in a challenge to central bankers intentions to bring the tightening cycle to a close. Brazil’s central bank claims now to be targeting inflation “around the target” in 2023, but even that may be hard to achieve given the inertia in price gains. Looking ahead, the full-month June inflation print, new figures for inflation expectations and the real’s performance will be critical variables to determine whether the central bank will opt for a 25 or 50bps move in August, and whether that will be the last in the cycle, as the monetary authority seems to consider.
-- Adriana Dupita, Brazil economist
The central bank board will raise borrowing costs by half a percentage point or less in its next policy decision as part of efforts to bring inflation down near target next year, Campos Neto told reporters on Thursday.
Read more: Brazil Central Bank Chief Says He’s Aiming for Sub-4% Inflation
Most analysts see inflation at 8.5% in 2022 and 4.7% in 2023, according to the latest estimates published by the central bank. The monetary authority targets consumer prices at 3.5% and 3.25% for those years, respectively.
Higher cost of living is proving to be Bolsonaro’s biggest headache ahead of October’s presidential election. The head of state, who trails rival Luiz Inacio Lula da Silva in recent polls, has backed measures to lower fuel taxes. He is now considering whether to raise cash handouts to the poor.
(Updates with details from release, analyst comments from third paragraph on)
©2022 Bloomberg L.P.
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