Brazil’s inflation seen higher in December, but annual rate on target: Reuters poll

By Gabriel Burin

(Reuters) – Brazil’s monthly inflation probably sped up in December on higher costs of farm products and airfares, but the annual rate should have remained close to the central bank’s upper target, a Reuters poll showed.

Overall, consumer prices in Latin America’s No.1 economy behaved better in 2023 than previously thought, thanks to outstanding agricultural conditions, strict monetary policy, and some fiscal restraint efforts from the government.

Brazil’s IPCA inflation index is forecast to have increased 0.48% in December, compared to a 0.28% rise in November, according to the median estimate of 23 economists polled Jan. 3-9. Consumer price figures are scheduled for publication on Thursday.

However, the year-on-year rate is seen at 4.54%, below 4.68% in November and the upper limit of the central bank’s official target range of 1.75% to 4.75% for the first time since 2020. Estimates stood between 4.40% and 4.80%.

Still, costs of staples, such as beef or rice have recently started to grow faster due to a drop in farm output caused by the effects of the El Nino weather pattern this year, after a bumper crop in the previous cycle.

“The most significant positive contribution should come from food and beverages, reflecting stronger agricultural prices,” said Laiz Carvalho, Brazil economist for BNP Paribas, on the drivers of December’s monthly inflation.

“Year-end holidays are also expected to impact transportation due to increased airfares, partially offset by lower fuel prices”, as millions of Brazilians go on vacation during the Southern hemisphere summer.

Airfares shot up 65% in the last four months, a “worrying” trend the government is trying to revert, Finance Minister Fernando Haddad said in December, following the release of higher-than-expected bi-weekly inflation data.

In all, however, consumer prices are expected to continue relatively subdued in 2024, rising 3.90% and staying under this year’s official goal of 3% plus/minus 1.5 percentage points, according to the latest consensus forecast in a central bank survey.

“Overall inflation dynamics remain benign,” said Felipe Sichel, chief economist at Porto Asset. “The central bank will keep on cutting rates at a 50 basis-points clip towards a terminal rate of 9.25%, which should be achieved by July.”

Brazil’s central bank governor said last month he viewed the pace of 50-basis-point interest rate cuts per meeting as appropriate for current conditions and aimed at bringing borrowing costs to the “lowest possible level” this year.

(Reporting and polling by Gabriel Burin; Editing by Tomasz Janowski)