BRASILIA (Reuters) – Annual inflation in Brazil rose above 5% in February for the first time in four years, official figures showed on Thursday, above analysts’ expectations and almost certainly setting the seal on an interest rate hike next week.
The central bank was already expected to deliver the first increase in Brazilian interest rates since 2015 at its March 16-17 meeting. The latest inflation numbers open up the possibility that it may even be a 75 basis point increase.
“The jump in Brazilian inflation to a stronger-than-expected 5.2% last month makes it almost certain that Copom will begin a tightening cycle next week,” said William Jackson, chief emerging market economist at Capital Economics, referring to the bank’s rate-setting committee known as ‘Copom’.
“While we’ve penciled in a 50bp rate hike to 2.50%, these data make a larger rise of 75bp increasingly likely,” he said.
The annual rate of consumer inflation in February rose to 5.20% from 4.56% in January, statistics agency IBGE said, above the 5.06% median forecast in a Reuters poll of economists and the highest since January 2017.
The central bank’s year-end target is 3.75%, with a 1.5 percentage point margin of error on either side. Many economists expect inflation to continue rising in the coming months and peak above 6% before easing.
The monthly rate of inflation rose to 0.86% in February, IBGE said, the highest for any February since 2016 and higher than economists’ forecast for a 0.72% increase.
Eight of the nine categories surveyed by IBGE showed rising prices in February, with a 2.28% rise in transport costs accounting for almost half of the overall rise.
Within the transport segment, fuel prices rose more than 7% on the month, IBGE said.
The central bank’s benchmark Selic interest rate has been held at a record low 2.00% since August last year. The bank’s latest weekly survey of economists on Monday suggested it will be raised to 4.00% by the end of this year and 5.50% next year.
(Reporting by Jamie McGeever; Editing by Toby Chopra and Nick Zieminski)
