Inflation in Brazil Slows in January

The latest data from the Brazilian Institute of Statistics (IBGE) has shown that the Extended Consumer Price Index (IPCA) rose by 5.60% in the 12 months ending in January, a decrease from the 5.77% registered in the same period in the previous year. Inflation did increase in February, but it was lower than that of February 2022. So far this year, the index has risen by 1.37%.

The education sector played a role in driving the increase in February with inflation standing at 6.28%. This coincided with the start of the academic year. Meanwhile, health saw inflation rise by 1.26%.

Inflation and weak economic growth remain the key concerns in Brazil. Lula, who won the elections in October last year, has promised more significant spending. However, this has caused concerns in the market, which fears more significant inflation.

The Central Bank of Brazil (BCB) has maintained the reference interest rate at 13.75% since August last year in a bid to keep price increases at bay, even amid criticism from Lula that high-interest rates harm the country’s growth prospects. The Central Bank’s target for inflation in 2023 is 3.25%, with a margin of +/- 1.5%.

However, the market has raised its inflation expectation for 2023 to 5.90%, according to the BCB Focus bulletin. If inflation continues to be a cause for concern, the Brazilian Central Bank may have to review their monetary policies.