By Gabriel Burin
(Reuters) – Brazil’s monthly inflation rate likely accelerated to a one-year high in February, a Reuters poll found, from where it should begin to fall back again in coming months due to abundant supplies of farm products and softer economic conditions.
Except for some seasonal effects, consumer prices in Brazil have remained tame since the start of 2023, thanks to a tight policy stance by the central bank that is causing the economy to cool, despite a raft of modest rate cuts.
Official inflation data on Tuesday are forecast to show a faster monthly clip for February, rising to 0.78% – likely the highest since February 2023 – from 0.42% in January, according to the median estimate of 25 economists polled between March 6-11.
“We expect a rise of 0.78% on the back of a seasonal hike of tuition fees, while fuel prices were impacted by the increase of the ICMS (state tax),” said Mauricio Nakahodo, senior economist at MUFG.
Brazil’s bi-weekly inflation gauge picked up in mid-February driven by higher education prices. The sector led an overall rise with a 5.07% jump mainly due to seasonal hikes in school fees.
On a yearly basis, consumer prices are predicted to have increased 4.44% last month, slowing down from 4.51% in January and returning to the official target for 2024 of 3% plus/minus 1.5 percentage points.
One of the reasons behind this is the country’s consolidation as one of the world’s top food producers. In the most recent sign of progress, Brazilian sugar exports jumped 162% and coffee shipments rose 77% last month.
At the same time, pressure on domestic consumer prices continues to decrease as Latin America’s No.1 economy slows down. The Brazilian central bank’s modest campaign of rate cuts has restrained bank lending.
The monetary authority’s benchmark for the cost of borrowing is 11.25%. Very high real rates are restraining economic growth and reducing companies’ pricing power.
In the medium-term, inflation is now seen ending 2024 at 3.76%, according to a weekly central bank poll among private sector economists. The latest consensus estimate was lower than 3.80% in the previous week.
“Broadly, we think that inflation will moderate from current levels in 2024 … as the demand-supply gap narrows, the labour market cools slightly, and global price pressures subside,” Societe Generale analysts wrote in a report.
(Reporting and polling by Gabriel Burin; Editing by Raju Gopalakrishnan)