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Brazil’s annual inflation slowed less than expected in early January despite a drop in energy costs, highlighting the challenges facing policymakers as they prepare to raise borrowing costs again next week.
Author of the article:
Bloomberg News
Andrew Rosati
Published Jan 24, 2025 • 1 minute read
(Bloomberg) — Brazil’s annual inflation slowed less than expected in early January despite a drop in energy costs, highlighting the challenges facing policymakers as they prepare to raise borrowing costs again next week.
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Official data released Friday showed consumer prices rose 4.5% from a year earlier, above the 4.36% median forecast in a Bloomberg survey of economists. On the month, they increased 0.11%.
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The central bank has pledged to deliver its second straight jumbo interest rate hike next week — which would lift the benchmark Selic to 13.25% — as policymakers maneuver to bring inflation under control. Economists are bracing for even more price pressures, as Brazil’s currency is being dragged down by concerns over President Luiz Inacio Lula da Silva public spending ambitions.
Those factors are adding to the list of challenges facing Gabriel Galipolo, the new central bank chief, as he kicks off his term. Consumer-price growth was well above the 3% target at the end of 2024 — and analysts surveyed by the central bank see it ending 2025 even higher than last year’s final print.
Bad weather fanned prices last year. But the inflation outlook for Latin America’s biggest economy is being clouded by a growing budget hole, which investors say Lula badly needs to close.
His administration triggered market backlash late last year after the government watered down a series of spending cuts by including tax exemptions for low earners. The resulting selloff sank the real to an all-time low against the greenback, driving up the price of imports.
Lula’s economic team is mulling a second package of austerity measures to soothe investor anxiety, but global markets are being jolted by President Donald Trump’s plans to slap tariffs on the US’s major trading partners.
—With assistance from Giovanna Serafim and Robert Jameson.
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English (US)