Brazil inflation slows in January, but 4.6% annual rate remains punchy
- 10 February 2021
Monthly inflation in Brazil slowed in January as a sharp fall in electricity prices dragged down housing costs, official figures showed on Tuesday, but the annual rate of inflation remained high and significantly above the central bank’s year-end goal, APA reports citing Reuters.
It was the third month in a row the benchmark annual IPCA consumer inflation rate has been above 4%, having more than doubled from the record low below 2% last May.
The annual rate of 4.56% in January was slightly below the 4.61% median forecast in a Reuters poll of economists, but the highest for any January since 2017, statistics agency IBGE said.
“The big surprise was the fall in housing costs. Looking ahead though, we must be vigilant. Food prices remain very high, and transport costs are rising too,” said Jason Vieira, chief economist at Infinity Asset Management in Sao Paulo.
The central bank’s year-end goal is 3.75%, with a 1.5 percentage point margin of error on either side.
Although seven of the nine categories surveyed by IBGE showed rising prices in January, monthly inflation slowed to 0.25% from 1.35% in December. That was less than the 0.31% forecast in a Reuters poll, with a 5.6% fall in electricity prices driving an overall 1.07% decline in housing costs.
This softened the impact of another strong rise in food and drink prices, which rose 1% on the month, IBGE said.
Inflationary pressures remain strong. Annual factory gate inflation ended last year at 19.4%, the highest level since the series began in 2014.
Economists at Barclays raised their 2021 forecast to 3.9% from 3.6%, still with upside risks, and brought forward their first interest rate hike forecast to March from May.
Policymakers acknowledge that the “transitory” spike in inflation they had forecast is turning out to be rather more sticky. Central bank president Roberto Campos Neto said last month that Brazil is facing a potential near-term challenge of sluggish growth and high inflation.