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Brazil mid-month inflation index ends year at 5.9% after monetary tightening

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SAO PAULO — Brazil’s IPCA-15 consumer price index, which tracks mid-month inflation in Latin America’s largest economy, ended 2022 with an annual 5.9% rise, roughly in line with economists’ forecasts, data from statistics agency IBGE showed on Friday.

The annual rate, which peaked at 12.2% in May, has been cooling recently after an aggressive monetary tightening by the central bank and government measures to tame high inflation.

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The latest data, however, is unlikely to trigger interest rate cuts anytime soon as economists project future drops in inflation will amount to a slow trickle, alongside concerns over government plans to boost spending in 2023.

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The December mid-month figure dropped from 6.17% in the previous mid-month data and essentially matched economists’ expectations of 5.92% in a Reuters poll, though remaining well above the central bank’s target of 3.5% for this year.

It also matched November’s full-month figure of 5.9%, suggesting “the big falls in inflation have now happened and it will be a much slower grind lower from here,” Capital Economics’ chief emerging markets economist William Jackson said.

Jackson added he expects Brazil’s central bank to look at cutting interest rates only around the middle of 2023, having pausing an aggressive tightening in September that took the benchmark rate to 13.75% from a record low of 2% in March of last year.

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In 2021, amid strong inflationary pressures, the IPCA-15 index closed the year at 10.42%, its highest level since 2015.

This year, food and beverage costs had the largest impact on the index, the statistics agency said, as they jumped 11.96%.

On a monthly basis, IBGE reported a 0.52% rise in the month to mid-December, compared with 0.53% in November, propelled mainly by higher food and transportation costs, and as forecast in a Reuters poll.

“What matters the most for the central bank’s monetary policy are expectations for 2024 and 2025 inflation, which will not be largely affected by today’s figures,” said BNP Paribas economist Laiz Carvalho.

“We still believe the central bank will keep rates on hold at least for the entire first half of 2023,” she added, citing concerns over the fiscal scenario. (Reporting by Gabriel Araujo and Camila Moreira Editing by Frances Kerry and Mark Potter)

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