Brazil Inflation Rises For First Time In 8 Months

Brazil’s consumer price inflation increased in May after easing in the previous seven months and remained above the central bank’s 3 percent target, suggesting that policymakers are likely to leave the Selic rate unchanged next week.

The consumer price index climbed 3.93 percent year-over-year in May, faster than the 3.69 percent rise in April, figures from the Brazilian Institute of Geography and Statistics, or IBGE, showed on Tuesday. Economists had expected inflation to rise to 3.89 percent.

Nonetheless, inflation remained within the central bank’s upper tolerance band of 4.50 percent.

Prices of food and beverages grew at a faster pace of 3.56 percent annually in May versus a 3.1 percent rise a month ago. The upward trend in inflation was also influenced by a 4.32 percent rise in transportation costs, which was 3.27 percent in April.

On a monthly basis, consumer prices moved up 0.46 percent in May, following a 0.38 percent rise in the previous month.

The expected increase was 0.42 percent. The rise in monthly inflation was largely due to price developments in food and drinks.

The rise in inflation and, more importantly, the re-acceleration in underlying core services inflation means a rate cut next week is off the table, Capital Economics economist William Jackson said.

“And given that inflation is set to rise further, the labor market remains strong and that inflation expectations are rising, it now looks most likely that the Selic rate will remain at 10.50 percent until year end,” Jackson added.

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