Brazil’s Highest Inflation Since 2003


As Brazil's central bank continued raising interest rates, inflation in the world's second largest South American market reportedly rose to 7.14%, from 6.41% at the beginning of 2015. This is way above the government's earlier estimated 4.5%.

Brazil's statistic agency mentioned in a statement that according to the national benchmark IPCA (Indices de Precios de Consumo Armonizados) index, monthly inflation has risen from 0.78% in December, to 1.24% in the month of January. This is the quickest pace of inflation since 2003.

Brazil has something going for it. They run their cars on sugar ethanol, which keeps capital in their own country, and they sell natural gas and oil to other countries. It is a win-win for them.

Consumer Effects 

The measures adopted to restore government finances are weighing down the average consumer with higher taxes and price regulation.  In a statement released by the chief strategist at Banco Mizuho do Brasil SA, Luciano Rostagno, the inflation figure actually matches the central bank’s expectations.

He further mentioned that the risk of inflation going over the upper limit of the central bank's target was extremely high.  Government bond-based interest rate swaps due on January 2017 rose by 10 basis points, or 0.10%, to 12.74%. The real weakened 0.9% to 2.7697 against the US dollar, the weakest since December 2004.

Food & beverages prices also rose, to 1.48% in January, after a similar rise just a month earlier.  Transport costs also leaped 1.83%, while and housing prices rose 2.42%due mainly to a hike in electricity costs. An economist at Rosenberg Consultores Associados believes that the rise in food prices will stem the growth of inflation in the first quarter.

According to data made available by BNP Paribas SA, Brazil's 2015 inflation forecast increased to 8% from its previous 7%. The head of Latin America economic research had earlier blamed electricity prices, a crumbling currency, and even the possibility of water rationing would further lead to an increase in food prices.

Controlled Prices

In desperate efforts to shore up government finances, the Finance Minister, Mr. Joaquim Levy announced in a January statement that the local government would once again begin collecting its controversial Cide tax on fuels.  Municipal corporations on the other side of the system hiked the fares on all its public transport.

Brazil's statistics institute announced the regulated prices for rationed items like power, petroleum, and government buses rose by 2.5% in January.  Regulated prices increased by almost 8% year-over-year.  It is the first time since 2010 that the price increase has surpassed the general level of inflation.  And experts have estimated that it would spiral to over 10% before 2016.

Brazil's Banco Bilbao Vizcaya Argentaria's chief economist, Enestor dos Santos, stated that the further increase in food prices and other regulated items is likely to stem February's inflation levels to about 7.5%, which is anticipated to be 2015's peak.