(Bloomberg) — Brazil’s annual inflation rate edged down at the end of 2024 while remaining well above target, providing central bankers with scant relief as they prepare to jack up interest rates to tame price increases.
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Official data released Friday showed consumer prices rose 4.83% in December from a year earlier, roughly in line with the 4.84% median estimate in a Bloomberg survey of economists. On a monthly basis, prices increased 0.52%.
Brazilian law will obligate new central bank Governor Gabriel Galipolo to write a letter explaining why inflation overshot the 4.5% upper limit of the tolerance range. A hot economy and investor anxiety over public finances have stoked price pressures, wearing on consumers and grinding on President Luiz Inacio Lula da Silva’s popularity.
Swap rates on the contract due in January 2026, an indicator of the financial market’s outlook toward monetary policy at the end of this year, rose nearly 6 basis points in morning trading after the inflation report.
A 0.56% monthly fall in housing prices, thanks to cheaper electricity bills, drove December’s inflation slowdown. Yet every other group of goods and services tracked by the statistics agency became more expensive in the period, with food and transportation costs showing the biggest gains.
“This is a relatively positive end to the year, but it offers little comfort as the inflation outlook has deteriorated significantly,” Andres Abadia, chief Latin America economist at Pantheon Macroeconomics, wrote in a note.
Policymakers led by Galipolo are pledging to take necessary action to bring inflation to their 3% target — and have already announced plans to take the benchmark interest rate to 14.25% by March.
But their efforts to contain prices are being complicated by dismay over the government’s plans to address its budget gap. While Lula has tried to assuage those fears, a package of spending cuts unveiled in November fell well short of investors’ expectations.
The resulting sell-off made Brazil’s currency — the real — tumble to an all-time low against the dollar in December, driving up the costs of imports.
–With assistance from Giovanna Serafim.
(Recasts lede, adds inflation details and market reaction beginning in fourth paragraph.)
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