Brazil’s inflation surpassed 5% for the first time in over a year in February, prompting further interest rate hikes by the central bank. The annual rate rose to 5.06%, leading to expectations of a Selic rate increase to 14.25%. Higher housing and education costs contributed to this inflation and have challenged President Lula’s popularity while prompting government intervention in food prices.
In February, Brazil’s annual inflation surged past 5% for the first time in over a year, with consumer prices increasing by 5.06% annually, as reported by the statistics agency IBGE. This figure is notably above the official target and marks an acceleration from January’s 4.56%, aligning with the anticipated increase of 5.05% in a Reuters poll. It is the highest inflation rate since September 2023.
The Brazilian central bank aims for inflation at 3%, plus or minus 1.5 percentage points, and has been implementing interest rate hikes since September to achieve this goal. The upcoming meeting on March 18-19 is expected to solidify a third consecutive increase of 100 basis points to the Selic rate, potentially bringing it to a peak of 14.25%, a level not seen in over eight years.
William Jackson of Capital Economics stated, “Our base case is that next week’s meeting will see the final hike in the tightening cycle, but the likelihood of one or two smaller hikes after that is rising.” In addition to the annual increase, consumer prices rose monthly by 1.31%, the highest increase since early 2022 and the largest for February since 2003.
The rise in monthly prices is attributed to escalating costs in housing and education. The previous month’s drop in electricity costs, aided by one-time credits, saw a reversal in February, contributing to higher overall living expenses along with increased food and transport prices. This inflation surge has affected President Luiz Inacio Lula da Silva’s popularity, prompting his government to reduce food import taxes last week in an effort to mitigate rising costs.
Andres Abadia from Pantheon Macroeconomics observed, “Weakening domestic demand and persistently tight financial conditions will constrain the inflation uptrend,” highlighting the economic challenges Brazil may face in the upcoming months.
Brazil’s annual inflation has exceeded 5%, prompting the central bank to continue its aggressive monetary tightening to curb rising prices. With expectations of further interest rate hikes, the effects of increased housing, education, food, and transport costs are critical in assessing the country’s economic landscape. President Lula faces challenges in addressing these inflationary pressures, which may impact his popularity and government policies moving forward.
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