(Bloomberg) — Brazil’s annual inflation eased roughly in line with expectations in August, offering limited relief to a central bank that’s under pressure to lift interest rates to contain above-target price increases.
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Official data released Tuesday showed prices rose 4.24% from a year earlier, just below the 4.27% median estimate of analysts surveyed by Bloomberg. On the month, inflation stood at -0.02%.
The robust pace of growth in Latin America’s largest economy has investors betting that a hike to the benchmark Selic from its current level of 10.5% is imminent next week. Brazil watchers say the move is also necessary to respond to a slide in the value of the currency, increased public spending and worsening inflation forecasts.
A 0.51% fall in housing costs, which came on the back of a reduction in electricity bills, as well as a 0.44% decline in the price of food and beverages led to August’s monthly deflation. Meanwhile, the cost of education rose 0.73%, the statistics agency said.
Propelled by a hot jobs market and government aid, Brazilian households are spending big even as high borrowing costs weigh on their finances. Inflation projections remain well above the 3% target for this year and next.
That’s put the central bank, which hit the brakes on its easing cycle in June, in a tight spot as it undergoes a leadership succession. Last month, President Luiz Inacio Lula da Silva tapped the bank’s Monetary Policy Director Gabriel Galipolo to replace current Governor Roberto Campos Neto when his term ends in December.
But some in markets are unconvinced that a Lula ally will keep inflation in check while the leftist president is promising to spend to boost growth and improve living conditions.
–With assistance from Giovanna Serafim.
(Updates with inflation details in fourth paragraph)
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