Brazil mid-June inflation rises above 8% for first time in nearly five years

RIO DE JANEIRO, BRAZIL – Brazilian consumer inflation, driven by strong rises in gasoline and electricity prices, rose above 8% through mid-June for the first time in almost five years, figures showed on Friday, June 25,

The IPCA-15 annual price index rose to 8.1% from 7.3% a month earlier, statistics agency IBGE said, another sharp rise that shows why the Central Bank last week again raised interest rates aggressively to try and keep 2022 inflation expectations in check.

That was the highest inflation level since October 2016, just shy of the 8.2% median forecast in a Reuters poll of economists. A year ago, official annual inflation was under 2%.

The 0.83% monthly rate of inflation in mid-June was virtually double the 0.44% the month before, also in line with a Reuters poll estimate of 0.86%.

According to IBGE, prices rose in all nine groups of consumer goods and services covered.

Transportation costs rose 1.35% in the month, accounting for just over a quarter of the overall rise. Within that segment, gasoline prices jumped 2.9% and are now up 46% over the last 12 months. Housing costs rose 1.67% in the month, also accounting for around a quarter of the overall rise, led by a 3.9% surge in electricity prices.

The Central Bank’s year-end inflation goal is 3.75% with a margin of error of 1.5 percentage points plus or minus, and its central target for next year is 3.50%.

The bank last week raised its benchmark Selic rate by 75 basis points to 4.25%. Minutes of the meeting showed that policymakers discussed an even bigger increase and could make a bolder move in August.

Central Bank CEO Roberto Campos Neto said on Thursday that many of the recent inflation surprises were transitory but had spread. He said the bank would use all the tools at its disposal to ensure its 2022 inflation goal was met.