Bloomberg — Brazil’s consumer prices surged past all forecasts in March following the national oil company’s decision to jack up fuel costs, adding to global inflationary pressures in the wake of Russia’s invasion of Ukraine.
Prices increased 11.30% from a year ago, more than expected by all economists in a Bloomberg survey, which had a median estimate of 11%. Inflation through the month reached 1.62%, the fastest for March since 1994, the national statistics agency reported on Friday.
Swap rates jumped higher as investors bet the central bank will have to tighten monetary policy more than previously anticipated. Rates on the contract maturing in January 2023, which signal expectations for the key rate at year-end, jumped 18 basis points to 12.93%.
Brazil’s central bank is nearing the end of a tightening cycling that’s increased the interest rate by 9.75 percentage points over the past year to combat the soaring cost of living. But the war in eastern Europe has sent commodity prices rising further, adding to the inflationary pain felt across the economy and also complicating President Jair Bolsonaro’s reelection bid.
March inflation was driven primarily by the cost of transportation, which jumped 3.02%, and food that rose 2.42%. State-controlled Petroleo Brasileiro SA (PETR4), or Petrobras, announced early last month that it would hike fuel prices as much as 25%. Bolsonaro ousted the company head just two weeks later, as voters fumed over inflation.
The central bank lifted the Selic to 11.75% last month, and signaled plans to raise rates by an additional percentage point in a final hike in May. Bank chief Roberto Campos Neto has said that prices should peak at 11% in April before they start falling toward target.
Policy makers target consumer prices at 3.5% in 2022 and 3.25% in 2023. Tight credit conditions and high inflation are casting a shadow on the economy, with analysts expecting just 0.5% growth in gross domestic product this year.