(Bloomberg) -- Brazil’s annual inflation rate edged down at the end of 2024 while remaining well above target, providing central bankers with scant relief as they prepare to jack up interest rates to tame price increases.
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Official data released Friday showed consumer prices rose 4.83% in December from a year earlier, roughly in line with the 4.84% median estimate in a Bloomberg survey of economists. On a monthly basis, prices increased 0.52%.
Overshooting the 4.5% upper limit of the central bank’s tolerance range means the institution’s new chief, Gabriel Galipolo, will have to write a letter explaining why it failed to hit its goal. That document will be published on Friday at 6pm local time. The last time inflation breached the ceiling was in 2022, but consumer-price growth began to cool shortly thereafter.
Now, a hot economy and investor anxiety over public finances are stoking price pressures, wearing on consumers and grinding on President Luiz Inacio Lula da Silva’s popularity. Many analysts are pessimistic about the months to come.
“This is a relatively positive end to the year, but it offers little comfort as the inflation outlook has deteriorated significantly,” Andres Abadia, chief Latin America economist at Pantheon Macroeconomics, wrote in a note.
Swap rates on the contract due in January 2026, an indicator of the financial market outlook toward monetary policy at the end of this year, rose nearly 6 basis points in morning trading immediately after the inflation report.
Core Inflation
Digging into Friday’s data, some economists were quick to point out that gauges of underlying inflation remained stubbornly high. That’s likely to maintain pressure on policymakers in upcoming rate decisions.
“Even though the headline numbers were in line with estimates, the details show worsening core and services inflation,” said Milena Landgraf, a partner at Jubarte Capital, in Sao Paulo.
A 0.56% monthly fall in housing prices, thanks to cheaper electricity bills, drove December’s inflation slowdown. Yet every other group of goods and services tracked by the statistics agency became more expensive in the period, with food and transportation costs showing the biggest gains.
What Bloomberg Economics Says
The inflation “breakdown continued to show signs of widespread price pressures, posing a challenge for new central bank chief Gabriel Galípolo and his revamped board. Galípolo has said the bar is high to depart from forward guidance of a 100-basis-point rate hike at the Jan. 29 meeting. Despite worrying signs from underlying inflation, the latest CPI report doesn’t meet the mark.”