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(Bloomberg) — Brazil’s inflation accelerated more than expected in the first half of May, breaching the ceiling of the central bank’s target range as food and housing prices rose.
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Official data released Wednesday showed consumer prices gained 0.62% from a month earlier, above the 0.57% median estimate of analysts surveyed by Bloomberg. From a year ago, inflation reached 4.64%, above the target of 3%, plus or minus 1.5 percentage points.
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President Luiz Inácio Lula da Silva is trying to ease the pain caused by the Iran war’s energy shock, rolling out social aid ahead of his October reelection bid. The measures have bolstered household budgets and buoyed the economy despite hefty borrowing costs, which has complicated efforts to tame inflation.
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Policymakers are slowly unwinding the benchmark Selic interest rate — currently at 14.5% — but building price pressures and a resilient economy are causing doubts about how much further they can cut.
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Rising food and beverage costs, which jumped 1.38%, drove price increases in early May, Brazil’s statistics agency said. Housing prices also picked up on more expensive utility bills, while transportation costs fell on cheaper fuel.
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Consumer spending has held up despite tight financial conditions, thanks to a hot jobs market and government stimulus. Economists warn that recently issued state aid to cushion higher fuel prices risks putting policymakers in bind.
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The measures “can reduce short-term headline volatility, but they also raise fiscal costs and risk unanchoring inflation expectations if maintained for too long,” Andrés Abadía, chief Latin America economist at Pantheon Macroeconomics, wrote in research note.
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Inflation forecasts for this year have risen for 11 straight weeks as the key indicator is expected to reach 5.04% in December, according to the central bank’s weekly survey of economists.
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—With assistance from Giovanna Serafim and Robert Jameson.
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(Updates with inflation details and analysis in fifth-seventh paragraphs)
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