Brazil Inflation Comes in Under Forecasts as Interest Rates Held High

view original post

(Bloomberg) — Brazil’s annual inflation rate rose less than expected in June, bolstering the central bank after it came under fire from the government for pausing its interest rate cuts to combat simmering price pressures.

Most Read from Bloomberg

Official data released Wednesday showed prices increased 4.23% from a year earlier, below the 4.32% median estimate from analysts in a Bloomberg survey. On the month, inflation stood at 0.21%, below all forecasts.

Swap rates on the contract due in January 2026, which are a gauge of market sentiment toward monetary policy at the end of next year, fell 15 basis points in morning trading following the slower-than-expected inflation print.

Policymakers broke a nearly yearlong streak of rate cuts last month as the economy outperforms expectations and investors fret over President Luiz Inacio Lula da Silva’s spending plans. The decision likely keeps the benchmark Selic in double-digits for the foreseeable future, a bid to tamp down fears that inflation could remain persistent.

Price rises are far their below their post-pandemic peak in 2022, but are now being pushed up by higher food costs and a slide in Brazil’s currency, the real. Economists have raised their inflation forecasts further above the 3% target.

Food and beverage prices that climbed 0.44% and a 0.54% jump in the cost of personal care products drove June’s inflation gain. Meanwhile, transportation costs fell 0.19% on a drop in airfares and cheaper prices of some fuels, the statistics agency said.

While the central bank is autonomous from the government, its cautious monetary policy has enraged Lula. He says borrowing costs are choking off growth and that bank chief Roberto Campos Neto is inflicting too much economic pain in trying to reach the inflation goal.

The clash has shaken local assets with markets betting the leftist president will try to exert more political pressure on the central bank once Campos Neto’s term ends later this year.

–With assistance from Giovanna Serafim.

(Recasts lede and adds inflation details and market impact throughout.)

Most Read from Bloomberg Businessweek

©2024 Bloomberg L.P.