Brazil’s Inflation Climbs to Over Two-Year High

New data indicates that Brazil’s yearly inflation experienced an uptick in early April, aligning with market predictions. This acceleration marks the highest level in over two years, occurring just before the central bank’s forthcoming interest rate decision in May.

The statistics agency IBGE reported that the IPCA-15 consumer price index saw a rise of 5.49% over the 12 months leading up to mid-April.

This figure represents an increase from the 5.26% recorded the previous month and signifies the highest point since February 2023. The reported rise was consistent with economists’ forecasts from a recent poll. Encouragingly, the monthly inflation rate showed signs of moderation.

These latest figures come as financial observers carefully assess the magnitude of a potential upcoming rate increase. The central bank has kept its options open for the May 7 decision, amidst an uncertain economic landscape and mixed indicators regarding reduced economic activity in Latin America’s largest economy.

Central bank policymakers have expressed ongoing concerns about inflation remaining considerably above their target of 3%, with a tolerance range of plus or minus 1.5 percentage points. They also noted improvements in inflation expectations, although these remain somewhat unstable.

In March, the central bank implemented a 100-basis-point increase in interest rates for the third consecutive time, bringing the rate to 14.25%. While hinting at another rate hike in May, albeit smaller, the bank refrained from specifying the exact amount.

Consumer prices for the period up to mid-April saw a rise of 0.43%, which is a deceleration from the 0.64% increase observed in the prior month. This aligns with market expectations, according to IBGE.

The agency stated that the monthly figure was largely influenced by increased expenses related to food and personal care items, while transport costs saw a decrease.

Jason Tuvey, deputy chief emerging markets economist at Capital Economics, suggests that the mid-April figures imply the central bank will likely move forward with a 50-basis-point increase in interest rates during their next meeting.

He further commented that recent statements from officials indicating their belief that tighter monetary policies are effectively curbing economic activity, and consequently inflationary pressures, hint that the end of the tightening cycle is drawing near.