(Bloomberg) — Brazil’s annual inflation slowed more expected, reaching the lowest since January 2021 as congress prepares to debate President Luiz Inacio Lula da Silva’s new fiscal framework meant to shore up the nation’s finances.
(Bloomberg) — Brazil’s annual inflation slowed more expected, reaching the lowest since January 2021 as congress prepares to debate President Luiz Inacio Lula da Silva’s new fiscal framework meant to shore up the nation’s finances.
Official data released Tuesday showed consumer prices rose 4.65% in March compared to the year prior, less than February’s reading of 5.6% and below the 4.71% median estimate from analysts surveyed by Bloomberg. Monthly inflation slowed to 0.71%.
Brazil’s central bank has held the country’s benchmark interest rate steady at 13.75% for five consecutive meetings in response to a deteriorating inflationary outlook. Growing debts and Lula’s plans for a more active role for the state in the economy have spooked investors and analysts alike, who say Brazil’s public accounts are in bad shape.
What Bloomberg Economics Says
“The March CPI result won’t prompt a rate cut. Long-term inflation expectations still need converge to the targets and market participants have to see an improved outlook for public debt.”
— Adriana Dupita, Brazil and Argentina economist
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Swaps rates on the contract due on January 2024, which indicate investors’ sentiment toward monetary policy at the end of this year, fell more than eight basis points in morning trading. The real gained 0.35% to 5.0492.
Brazil’s leftist leader is hoping to ease many fears about the country’s budget with a new proposal to limit spending, which is set to be presented to lawmakers later this week alongside guidelines for the 2024 budget. The government is promising to boost revenues to eliminate its primary fiscal deficit by next year through measures such as taxing online gambling and purchases abroad.
Finance Minister Fernando Haddad’s unveiling of the plan led analysts to hold their inflation forecasts steady in early April, according to the central bank’s weekly survey of economists. That broke a string of increases over the prior weeks.
Read more: Brazil Could Boost Revenue by $59 Billion Without Raising Taxes
In March, transportation costs rose 2.11% as fuel tax breaks expired, representing the main driver of the monthly gains. More expensive health and personal care products, which increased 0.82%, were another significant contributor, while household items fell 0.27%, the statistics agency said.
Lula regularly criticizes the central bank’s decision to keep interest rates high, a move the president says is hindering the nation’s economy and hurting both investment and the nation’s poorest people.
Annual inflation in Latin America’s biggest economy has plunged from last year’s peak of over 12% and has now fallen back within the bank’s target range. Policymakers aim for price increases of 3.25% for 2023 and 3% for 2024, with a tolerance range of plus or minus 1.5 percentage points.
Still, analysts widely expect consumer-price growth to pick up later in the year. Central bankers have said they want to assess the fiscal proposal’s impact on inflation expectations before they decide whether they can begin cutting interest rates later this year.
–With assistance from Martha Beck, Giovanna Serafim and Robert Jameson.
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