Food prices soar and Brazil grapples with highest inflation since 2016

Brazil’s benchmark inflation index rose by 4.52 percent last year, the highest level since 2016. Markets expected the rate to top the government’s 4-percent target, but believed it would not surpass 4.3 percent.

The increase in living costs was mainly caused by raising prices for food products, utilities (mostly electricity), and household appliances, accounting for 84 percent of the inflation seen over 2020. In December alone, the overall inflation rate jumped 1.35 percent — the biggest increase for the month since 2002.

Since the worst point of the crisis in Q2 2020 — when the country registered three straight months of deflation — prices have consistently risen, with the coronavirus emergency salary program heating up the domestic market and currency devaluation boosting commodity exports.

Now, market agents doubt that benchmark interest rates can remain at their current all-time low of 2 percent. Institutions surveyed by the Central Bank have increased interest rate projections for 2021-end to 3.25 percent.

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