Brazil’s National Broad Consumer Price Index (IPCA) rose higher than expected by market analysts, as inflation rose 0.12% in July compared to the previous month, while the year-on-year increase was 3.99%, according to data from the Brazilian Institute of Geography and Statistics (IBGE).
The rebound also comes after the central bank cut the benchmark interest rate on Aug. 2. Brazil’s central bank began gradual hikes in its rate, known as Selic, three years ago to contain the rise in the cost of living that afflicted most countries during and after the COVID-19 pandemic.
“Seven of the ten categories of goods and services recorded a higher monthly impression compared to June. Transport prices showed the biggest rise, up 1.5 percent last month, while housing, food, and beverages had the biggest drop in prices,” IBGE said.
“The result (0.12%) was above the market consensus of 0.08%,” wrote market strategist Luciano Rostagno of Mizuho Bank in Brazil.
“In its annual comparison, headline inflation returned to above the central bank’s target rate of 3.25% for this year; the government’s initiatives to lower inflation last year were left out of the annual comparison.” “Importantly, core, services, and food inflation continued to decline on an annual basis,” he added.
“Overall, the data suggests that price pressures continued to ease in July. However, services and core inflation remain high at 5.64% and 5.62%, respectively, meaning that convergence to the target still faces inflation risks. We expect the central bank to act cautiously in the face of lower interest rates,” Rostagno added.
