Brazil’s annual inflation rate remained at an 11-year high in mid-May despite a smaller increase in electricity rates and services prices, keeping pressure on the central bank to continue raising interest rates even as the economy is seen slipping toward a recession.
Consumer prices as measured by the IPCA-15 index rose 8.24 percent in the 12 months through mid-May, statistics agency IBGE said, up from 8.22 percent in mid-April and far above the government’s target of 4.5 percent, Reuters reported.
On a monthly basis, consumer prices rose 0.60 percent, down from an increase of 1.07 percent in the previous month and in line with expectations.
Electricity rates rose 1.4 percent month-to-month in mid-May, a much slower pace than the 13.0 percent increase in mid-April. Energy rates and other government-regulated prices climbed earlier this year as President Dilma Rousseff cut back on subsidies and raised taxes to plug a growing budget deficit.
Prices of services rose 0.15 percent, down from 0.85 percent in April. The sharp slowdown stemmed mainly from a steep drop in airfares, which are prone to sharp swings.
The mid-May inflation numbers add to signs that, while the worst of Brazil’s recent inflation bout has probably passed, it will take a long time to reach the 4.5 percent target.
Economists expect Brazil’s annual inflation to remain above 8 percent through early 2016 and then gradually descend toward 5.5 percent by the end of next year. The central bank, intent on lowering inflation expectations even further, is expected to raise its benchmark interest rate in early June from the current 13.25 percent, one of the highest in the world.
“We do not believe that today’s low services inflation print would be enough to assure Copom (central bank) members that the deterioration of the labor market is already alleviating the inflation outlook,” Barclays economist Bruno Rovai wrote on Friday.
Dents Consumer Confidence
High inflation has dented consumer confidence and business investments, pushing Brazil into what is likely to be its worst recession in 25 years, according to market forecasts. Economists say the recent rate hikes aimed at curbing inflation have dealt a strong blow to economic activity, driving up unemployment in recent months.
Brazil’s central bank chief on Friday renewed his commitment to slash inflation to the center of a government target by the end of 2016, signaling more interest rate hikes in Latin America’s largest economy.
