Brazil Analysts See Higher Inflation After Petrobras Hiked Domestic Fuel Prices

Brazil analysts raised their 2023 inflation forecasts after state-controlled oil company Petroleo Brasileiro SA hiked domestic fuel prices, hurting chances that price-growth will slow to this year’s target range.

(Bloomberg) — Brazil analysts raised their 2023 inflation forecasts after state-controlled oil company Petroleo Brasileiro SA hiked domestic fuel prices, hurting chances that price-growth will slow to this year’s target range.

Consumer prices will rise 4.9% this year, up from the prior estimate of 4.84%, according to a weekly central bank survey of economists published Monday. Annual inflation will slow down to 3.86% in 2024 and 3.5% in 2025. 

The monetary authority targets inflation at 3.25% for this year and then 3% through 2026, with a tolerance range of plus or minus 1.5 percentage points.

Policymakers led by Roberto Campos Neto signaled last week they are united behind plans to continue lowering the interest rate by 50 basis points at each meeting. The bar to accelerate the pace of cuts is “pretty high,” the central bank chief said, as board members would need significant improvements in cost-of-living expectations, output gap measures and services inflation.

Read More: Brazil Central Bank United on Current Rate Cut Pace, Chief Says

In early August, the central bank lowered the benchmark Selic by 50 basis points to 13.25%, though four policymakers voted for a smaller, quarter-of-a-percentage point cut. Borrowing costs will fall to 11.75% by December and 9% by the end of next year, according to Monday’s analyst survey. 

Read More: Petrobras Hikes Brazil Fuel Prices, Likely Stoking Inflation

Brazil’s inflation cooled down in recent months, though it’s expected to pick up in August after oil state-controlled Petroleo Brasileiro SA decided to increase wholesale prices of diesel and gasoline following a rally in global crude costs. As a result, the monetary authority expects an increase of 0.40 percentage points in inflation expectations for the next two months.

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