Brazil: Inflation continues softening in December
Inflation dropped for a sixth consecutive month in December; it came in at 5.8%, marginally below Novembers 5.9%. December’s figure marked the weakest inflation rate since February 2021. Despite the continued easing, Decembers rate remained above the Central Banks 3.5% target for 2022. Looking at the details of the release, prices for transportation fell at a steeper pace in December and prices for food and beverages softened from the previous month’s reading.
Accordingly, the trend pointed down, with annual average inflation coming in at 9.3% in December (November: 9.7%). The overall inflation rate for 2022 was the highest since 2003, when it hit 14.7%.
Finally, consumer prices increased a seasonally adjusted 0.62% from the previous month in December, accelerating from November’s 0.41% rise. December’s result was the highest reading since June.
While headline inflation moderated sharply from its 12.1% peak in April—partly thanks to an aggressive monetary policy stance—it missed the 3.50% target for the year. Double-digit inflation earlier in 2022 was partly driven by surging commodity prices following the outbreak of the war in Ukraine. Efforts to quickly reduce inflation were then ramped up ahead of the 2 October presidential elections.
In 2023, sluggish domestic economic growth and a tight monetary policy stance will continue to exert downward pressure on inflation. That said, large fiscal stimulus under the new administration poses a key upside risk, as it could halt the downward trend.