Brazil’s Consumer Prices Rise More Than Forecast in July

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  • Food prices accounted for nearly two thirds of inflation
  • Cost of milk was single-greatest contributor to inflation

Brazil’s consumer inflation accelerated more than forecast by analysts in July as food prices jumped higher, making it tougher for policy makers to bring down borrowing costs.

The benchmark IPCA consumer price index climbed 0.52 percent after a 0.35 percent rise the previous month. That was more than the median forecast for a 0.45 percent increase from 38 economists surveyed by Bloomberg. Twelve-month inflation decelerated to 8.74 percent, from 8.84 percent in June.

With the central bank’s monetary policy committee holding the benchmark rate at its highest level in nearly a decade, inflation has been coming down but not without bumps in the road. It remains more than two full percentage points above the ceiling of the bank’s target range, partly due to the impact of variable weather on food prices.

“In our case, the surprise was almost completely in food prices,” said Rodrigo Melo, chief economist at Icatu Vanguarda Administracao de Recursos Ltda. “If you exclude the food shock, you see that the IPCA has a more favorable dynamic, a dynamic of deceleration.”

Yields paid on interest-rate futures contracts maturing in January 2018 rose 4 basis points to 12.69 percent as the data will make it more challenging for the central bank to lower the benchmark Selic, according to Bruno Marques, fund manager at XP Gestao.

Food and beverage prices rose 1.32 percent in July, following a 0.71 percent increase the previous month and accounting for nearly two thirds of the month’s inflation. Milk alone accounted for more than one third of price increases in July. The cost of personal expense items rose 0.7 percent, double the pace of the prior month.

The central bank targets inflation of 4.5 percent this year, plus or minus two percentage points. It hasn’t fallen within that range since the end of 2014. The benchmark rate at its highest level since 2006 has constrained activity in Latin America’s largest economy, which economists surveyed by Bloomberg forecast will shrink 3.5 percent this year.