Good signals from the Brazilian economy: inflation picks up in mid July
Consumer prices in Brazil rose faster than expected in the month to mid-July on higher food costs, suggesting the central bank may have less room than previously believed to cut interest rates much further.
Brazil's central bank has slashed interest rates in eight straight meetings to a record-low 8% in an effort to stimulate the country's faltering economy.
Brazil's benchmark IPCA inflation index rose 0.33% in the month to mid-July, government agency IBGE said on Friday, up from 0.18% in the previous reading.
Twelve month inflation rose to 5.24% from 5% in the previous month. Although it still sits comfortably within the government's target of 4.5% plus or minus two percentage points, it was the first rise for the mid-month inflation index since September.
That could strengthen the case for the central bank to stop cutting rates soon. The bank led by Alexandre Tombini signal led in minutes published on Thursday that at least one more cut should follow in August to prop up economic growth.
Yields on interest rate futures rose after the data was released suggesting traders see a higher likelihood that the central bank will stop cutting rates in August.
Food prices rose 0.88% after a 0.66% gain in the previous reading. Grain and soybean prices have jumped in global markets as the United States struggles with its worst drought in over 50 years.
Personal expenses like housekeepers' salaries also pressured the index, gaining 0.92% from 0.34% in mid-June. Transportation prices fell 0.59%, after declining 0.77% in the month to mid-June.
Brazil's anaemic pace of growth had been keeping a lid on consumer prices, which had risen at their fastest pace in seven years in 2011. Its once-booming economy is expected to grow this year at the slowest pace since the global credit crunch in 2008-2009, eking out a pace of growth comparable to struggling developed nations such as Japan.