Fuel price hike drives Brazilian September inflation

Fresh inflation data shows a continuation of the cooling of Brazilian price increases. Consumer prices rose 0.26 percent in September, lower than median market expectations of 0.33 percent.

Twelve-month inflation has risen for three straight months to 5.16 percent — above the government’s target band. 

But the uptick requires context. Key measures of consumer prices are cooling. Fewer product groups are getting more expensive. Food inflation has decelerated in each of the past ten months, from an annual hike of 11.84 percent in November 2022 to a modest increase of 0.88 percent last month.

Food prices have a big impact on the Brazilian economy, weighing disproportionately on poor families’ budgets.

On the flip side, transportation costs rose sharply in September, rising 0.29 percent due to surging fuel prices. This trend had been spotted by the IPCA-15, Brazil’s mid-month inflation index, two weeks ago. 

In September, fuel price hikes accounted for roughly 72 percent of the month’s overall consumer price increase, according to the IPCA-15 measurement.

More expensive airfares — which are another side effect of higher fuel prices — also pushed transportation costs up. In 12 months, plane ticket inflation jumped from 1.47 percent in August to 6.39 percent in September.

Fuel inflation could continue to rise, especially following the eruption of the conflict between Israel and Hamas, the militant group that controls the Gaza Strip and that launched an assault on Israeli territory on Saturday.

Jean Paul Prates, the chief executive at Brazil’s state-controlled oil giant Petrobras, said the company is willing to make price adjustments if deemed necessary in the wake of the attacks in the Middle East. Petrobras controls the lion’s share of Brazil’s oil refining market, and every pricing move it makes has a direct impact on the prices consumers pay at the pump.

Any move should not be immediate, however. The International Monetary Fund’s chief economist, Pierre-Olivier Gourinchas, said it’s too early to assess whether this jump will be sustained.

Despite the recent uptick in official inflation, markets do not expect this to mean an inflection in Brazil’s broader disinflationary trend. The consensus among the financial institutions polled by the Central Bank each week remains that, by the end of the year, inflation will reach 4.86 percent — just outside the official inflation target band.

That reinforces analysts’ perception that the Central Bank should continue to ease its monetary policy. Brazil’s policy rate currently stands at 12.75 percent — markets overwhelmingly expect the rate to close the year at 11.75 percent, in line with signals given by the bank.

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