Brazil Inflation Comes in Under Forecasts as Interest Rates Held High

Brazil’s annual inflation rate rose less than expected in June, bolstering the central bank after it came under fire from critics for pausing its interest rate cuts to combat price pressures. Official data released Wednesday showed prices increased 4.23% from a year earlier, below the 4.32% median estimate from analysts in a Bloomberg survey. Inflation stood at 0.21% on the month, under all forecasts. Swap rates on the contract due in January 2026, which are a gauge of market sentiment toward monetary policy at the end of next year, fell 16 basis points in morning trading following the slower-than-expected inflation print.

Policymakers broke a nearly yearlong streak of rate cuts last month as the economy outperforms expectations and investors worry over President Luiz Inacio Lula da Silva’s spending plans. The decision likely keeps the benchmark Selic in double-digits for the foreseeable future, a bid to tamp down fears that inflation will persist.

Price rises are far below their post-pandemic peak in 2022, but are now being pushed up by higher food costs and a slide in Brazil’s currency, the real. Economists have raised their inflation forecasts further above the 3% target. Food and beverage prices climbed 0.44% and a 0.54% jump in the cost of personal care products drove June’s inflation gain. Transportation costs fell 0.19% on a drop in airfares and cheaper prices of some fuels.

Going forward, there is plenty of reason for caution on inflation, as Brazil’s currency has recently pared losses, and state-controlled oil company Petroleo Brasileiro SA is raising gasoline prices for the first time in 11 months. The central bank’s vigilant stance has enraged President Lula, who says borrowing costs are choking off growth and that bank chief Roberto Campos Neto is inflicting too much economic pain in trying to reach the inflation goal.

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