Brazilian consumer inflation remains high, spread across several components, and is more persistent than anticipated. This is one of the conclusions noted in minutes of the Central Bank’s Monetary Policy Committee, which last week increased the Selic benchmark interest rate by 1 percentage point.
It was noted that “the increase of industrial prices has not slowed down and should persist in the short term, while services inflation accelerated even further. Recent readings were higher than expected and the surprise came in both the more volatile components and on items associated with core inflation.”
The Central Bank committee stressed that the “various measures of underlying inflation are above the range compatible with meeting the inflation target.” The last Focus Report predicted inflation at 6.4 and 3.7 percent in 2022 and 2023 respectively. The minutes also stated that there may be more prolonged inflationary pressures on industrial goods as a result of disruptions in global production chains.
The committee evaluated the appropriate pace of interest rate hikes and “concluded that a further adjustment of 1 percentage point, followed by an additional adjustment at the same pace, is the most appropriate strategy to achieve sufficient monetary tightening and to ensure inflation convergence over the relevant horizon, as well as the anchoring of long-term expectations.”
However, the minutes show that the committee will be ready to adjust the size of the monetary tightening cycle should the scenario evolve unfavorably.