SAO PAULO (Reuters) – Brazil’s inflation rate slowed in January from the previous month, data showed on Tuesday, but the 12-month rate was still above the upper end of the central bank’s target range, keeping expectations intact for another rate rise next month.
In Latin America’s largest economy, consumer prices as measured by the benchmark IPCA index rose 0.16% last month, government statistics agency IBGE said, slowing from a 0.52% increase in December and meeting forecasts in a Reuters poll of economists.
That was the lowest level of price increases for January since Brazil’s real currency was established in 1994, driven by a drop in housing costs as electricity prices fell sharply on the back of credits on household energy bills.
Annual inflation stood at 4.56%, decelerating from the 4.83% registered in the previous month.
Brazil’s central bank targets inflation at 3%, plus or minus 1.5 percentage points, and has been tightening its monetary policy in order to return it to the official goal.
Policymakers at the bank unanimously voted in January to raise the benchmark interest rate by 100 basis points for the second straight meeting to 13.25%, and signalled another hike of that size in March.
The latest inflation figure “is unlikely to prevent the central bank from delivering another 100bp hike to the Selic rate,” Kimberley Sperrfechter of Capital Economics said, noting that inflation expectations remain unanchored.
“For now, we think that March’s hike will mark the end of the tightening cycle, but the risks to our interest rate forecast lie firmly to the upside.”
Brazil’s government and central bank expect annual inflation to remain above 4.5% at least until June, but Finance Minister Fernando Haddad has said that a bumper crop and recent gains in Brazil’s currency should help put it under control soon.
The government has been especially worried about high food prices, which affected President Luiz Inacio Lula da Silva’s approval ratings.
In January, food and beverage costs rose 0.96%, easing from the previous month’s 1.18% increase.
Inter’s chief economist Rafaela Vitoria said that was good news but contrasted with still elevated services inflation, adding that the fresh data did not change expectations of a 100-basis-point rate hike next month.
“But from May onwards, with the next steps still to be decided, it will be essential to monitor activity and labour market data,” she noted. “A sharper slowdown would be welcome and may help reduce inflation.”
(Reporting by Gabriel Araujo; editing by Mark Heinrich and Susan Fenton)
