Economic Indicator Briefing - Brazil - Inflation

In October, consumer prices rose 0.45% over the previous month, according to the benchmark consumer price index (IPCA, Índice Nacional de Preços ao Consumidor Amplo). The reading came in above the 0.26% rise observed in September, but was broadly in line with market expectations, which had prices adding 0.42% month-on-month. The price rise was broad-based as all nine categories composing the index increased over the previous month. That said, higher prices for clothing as well as for food and beverages were the main drivers behind the price rise.

As a result of monthly price increase, annual headline inflation inched up from 6.3% in September to 6.4%, which represented the highest rate observed in more than three years. At the last monetary policy meeting on 29 October, the Central Bank Monetary Policy Committee (COPOM, Comitê de Política Monetária) decided unanimously to keep the benchmark SELIC interest unchanged at a two-year high of 13.75%. Monetary authorities have raised interest rates four times this year.

Monetary policy makers cited relatively widespread inflation as well as greater uncertainty in the international markets as reasons for their decision to keep rates unchanged. Furthermore, policy makers believe that the slowdown in the domestic economy as a result of the international credit crunch, will help to curb inflation more rapidly. The next monetary policy meeting is scheduled for 10 December.

The Central Bank currently expects inflation to end the year at 6.1%, which is well above the 4.5% target for 2008 and near the upper ceiling of the ±2.0% tolerance margin around the central target rate.

Forecasts: This indicator is covered in the FocusEconomics Consensus Forecast. For 5-year projections, including quarterly forecasts for the next two years, please visit our Online Store.