Brazilian inflation in July rose the most in four years, figures showed on Friday, driven by fuel and housing costs, although the annual measure remained significantly below the central bank’s year-end target. The IPCA index rose 0.36% in July, government statistics agency IBGE said.
“The rise to 2.3% is unlikely to worry the central bank and, with the economy still very weak, we expect the Selic rate to stay at its current historic low through this year and next,” economists at Capital Economics wrote in a note.
”Price pressures in Brazil remain very weak. The headline rate is well below the central bank’s target ... and inflation in most parts of the CPI basket other than transport fell between June and July,” they said.
The central bank’s official 2020 inflation target is 4.00%, and 3.75% for next year, with a 1.5 percentage point margin of error on either side.
In its statement accompanying its decision to cut the benchmark Selic rate this week to 2.00%, the central bank acknowledged that inflation is running well below target despite lower borrowing costs and a weak currency.
According to IBGE, the biggest drivers in July were a 0.8% rise in transport costs as fuel prices picked up, and a 0.8% increase in housing costs. Between them, they accounted for nearly 80% of the overall monthly rise in inflation.
Of the nine sectors covered, six showed inflation and three showed prices falling on the month, IBGE said. Clothing saw the biggest decline on the month, dropping 0.5%.
The accumulated rate of inflation in the first seven months of the year was 0.46%, IBGE said, and the 2.3% annual increase marked the second consecutive rise from a historic low of 1.9% in May.