BRASILIA (Reuters) -Brazil’s monthly inflation slowed in March as expected but the 12-month reading remained under pressure due to rising food prices, official data showed on Friday, adding to a tough outlook for a central bank that has been hiking interest rates aggressively since September.
Consumer prices measured by the benchmark IPCA index rose 0.56% in March, in line with the median forecast of economists polled by Reuters, following a 1.31% rise in February.
In the 12 months through March, inflation rose 5.48%, up from 5.06% in February and well above the central bank’s 3% target, which has a tolerance range of 1.5 percentage points in either direction.
“This inflationary backdrop combined with resilient economic activity, particularly in the labor market, and a weakening exchange rate driven by the global tariff war creates a challenging environment for monetary policy,” said Arnaldo Lima, head of institutional relations at Polo Capital.
He said the data sets the stage for a longer monetary tightening cycle.
The central bank has raised the benchmark Selic rate by 375 basis points since September, pushing it to 14.25%, and has penciled in another hike at its policy meeting next month.
Although policymakers had projected slightly higher inflation figures for March in their quarterly monetary policy report, many economists pointed to a negative breakdown in the data released by statistics agency IBGE.
“The inflationary pressures remain strong, particularly among core services, and goods/tradable inflation is normalizing upwards from low levels,” said Alberto Ramos, head of Latin America Economic Research at Goldman Sachs.
The inflation print came out alongside a Friday release of a central bank economic activity index that beat expectations in February.
That activity data shows it is still too early to gauge the impact of ongoing monetary tightening, said Tatiana Pinheiro, chief economist at Galapagos Capital, with effects likely to become clearer in the second quarter.
“Neither data point eases pressure on the central bank.
Both signal the need for continued monetary tightening,” she said, projecting a 75 basis-point hike to conclude the cycle in May.
All categories of goods and services posted monthly increases in March, with food and beverages weighing most heavily on the inflation index as price gains accelerated to 1.17% from 0.70% in the previous month.
Soaring food prices have been a key factor behind the declining approval ratings of President Luiz Inacio Lula da Silva.
The central bank had warned that monthly consumer price gains were likely to remain elevated, with 12-month inflation hovering around 5.5% amid continued pressure from food prices.
(Reporting by Marcela Ayres; Editing by Brad Haynes, Paul Simao and Nia Williams)
