Inflation in Brazil and Mexico accelerated above expectations in early October as a rise in prices for volatile items such as energy and food complicates the outlook for monetary policy in Latin America’s biggest economies.
Official data released this Thursday (24) showed that consumer prices in Brazil rose 4.47% compared to the previous year, more than the median estimate of 4.43% from economists surveyed by Bloomberg.
Mexico’s annual inflation accelerated to 4.69% over the same period.
A 5.29% increase in residential electricity bills and a 0.87% increase in food and beverages boosted inflation in Brazil in the first two weeks of October. In Mexico, energy costs rose 2.25% in the period, while fruits and vegetables increased 1.94%.
READ MORE: For the first time in 20 years, debt linked to Selic approaches 50% of the total
Strategies to achieve goal
Policymakers in both countries have struggled to bring inflation to their 3% targets. Still, Mexico’s central bank is cutting its benchmark interest rate as core prices — which exclude volatile items — have been rising at a slower pace.
Brazilian monetary policymakers are moving in the opposite direction, tightening monetary policy amid a resilient economy, increased public spending and worsening inflation expectations.
“The positive surprise in Brazil’s bond inflation was also accompanied by worse core and services components, confirming inflation concerns.”
Dan Pan, economist at Standard Chartered Bank
Amid Brazil’s worst drought on record, regulators have been raising energy prices to compensate for low water levels at hydroelectric plants, which provide about two-thirds of the country’s electricity.
The Central Bank of Brazil is already tightening monetary policy to cool demand and contain inflationary pressures. THE Selic rate is at 10.75% after last month’s quarter percentage point increase. And there are those who already predict that it could exceed 13% next year.
READ MORE: Central Bank resumes interest rate hike and Selic rises to 10.75% per year
