Brazil’s Inflation Likely Peaked After Hitting 18-Year High

Brazil’s consumer prices rose less than expected in November, a sign that inflation may now start to cool down after reaching its fastest pace in 18 years.

A shopper browses merchandise during the official opening of a new Grupo Havan retail store in Indaiatuba, Sao Paulo state, Brazil.
By Andrew Rosati
December 10, 2021 | 10:30 AM

Bloomberg — Brazil’s consumer prices rose less than expected in November, a sign that inflation may now start to cool down after reaching its fastest pace in 18 years.

Prices increased 10.74% from a year ago, the most since 2003 but below the 10.9% median forecast in a Bloomberg survey. On the month, they rose 0.95%, also less than an estimated 1.09% jump, the national statistics agency reported on Friday.

“It confirms that 12-month inflation peaked in November,” said Mirella Hirakawa, an economist with AZ Quest Investimentos in Sao Paulo. “That surprise doesn’t change the message: Inflation remains pressured by shocks and strong demand amid the economic reopening.”

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Brazil's inflation rose less than forecast in Novemberdfd

Longer-dated swap rates sank as traders bet the central bank will be able to cut interest rates faster after the current monetary tightening cycle is over. The contract maturing in January 2023, which indicates expectations for the Selic at end-2022, fell 26 basis points to 11.37%. It was the most-traded in Sao Paulo.

Brazil’s central bank is forging ahead with the world’s most aggressive monetary tightening cycle, which has increased borrowing costs by 725 basis points this year. The combo of surging prices and a higher Selic is sapping consumers’ purchasing power and dragging the economy into recession.

What Bloomberg Economics Says

“November’s lower-than-expected inflation print is a welcome surprise, as is the slowdown in service prices. But make no mistake: The picture for Brazilian inflation remains rather challenging. The central bank conditioned a change in its super-hawkish strategy on signs of ‘consolidated disinflation,’ and it will take more than the positive news in today’s reading to warrant that.”

-- Adriana Dupita, Latin America economist

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Policy makers lifted borrowing costs to 9.25% on Wednesday, and signaled that a third straight hike of 150 basis points is on tap for February. In a statement, they wrote that they will persist until consumer prices anchor at target.

Central bank chief Roberto Campos Neto indicated earlier this year that inflation was set to peak in September. But global factors such as supply shocks and costlier fuel, as well as domestic government spending have continued to pressure prices.

Friday’s reading was interpreted by several economists as the first indication that sizzling consumer prices may finally be cooling. One-time Black Friday sales, with retailers giving discounts on everything from electronics to personal care items, also helped.

The data is “a sign that inflation is stabilizing a bit sooner than most analysts had expected, and supports our view that the tightening cycle won’t have much further to run,” William Jackson an economist at Capital Economics, wrote in a research note Friday.

Seven of the nine groups of goods and services tracked by the statistics agency rose in price in November. Transportation costs that jumped 3.35% and housing that became 1.03% more expensive were the biggest contributors to the monthly rise, while the price of personal items fell 0.57%.

Brazil’s central bank targets annual inflation at 3.75% this year and 3.5% in 2022.