Brazil annual inflation rate rises to 5-year high of 8.4% in June

RIO DE JANEIRO, BRAZIL – Brazilian inflation in June hit its highest rate in nearly five years, figures showed on Thursday (7), with the annual rate of 8.4%, more than double the Central Bank’s year-end goal and likely to bolster the case for another aggressive hike in borrowing costs next month.

With policymakers acutely aware that inflation is well on track to exceed this year’s target, the latest solid rise in consumer prices could deepen their unease by further threatening to unmoor inflation expectations for next year.

The June monthly rate of inflation slowed to 0.53% from 0.83% in May, statistics agency IBGE said, as expected. The rise was driven by a 1.10% increase in housing costs, which include electricity. This accounted for around a quarter of the overall monthly rise in prices.

The 8.4% annual rate of inflation in June was up from 8.1% the previous month and the highest since September 2016, IBGE said.

Eight of the nine categories surveyed by IBGE showed rising prices in June. The biggest drivers after housing costs were a 0.43% rise in food and drink prices and a 0.41% increase in transport costs, which include fuel. Both accounted for around a fifth of the overall increase, IBGE said.

The Central Bank’s year-end inflation goal is 3.75%, with a 1.5 percentage point margin of error on either side. These latest figures show inflation significantly higher than even the 5.25% upper limit of that range.

The worry for Central Bank chief Roberto Campos Neto and his colleagues is that this rise will seep into next year’s outlook, forcing the bank into tightening policy even quicker and more aggressively than it is already doing.

The Central Bank’s 2022 inflation goal is now 3.50%, but most predictions are for a far higher rate.