Brazil's Rate-Cutting Cycle Could End as Prices Rise in May

• Consumer prices in Brazil accelerated more than expected in May, data from statistics agency IBGE (the Brazilian Institute of Geography and Statistics) showed on June 11, 2024. A jump in food costs helped drive annual inflation further from the central bank's target.
• Prices as measured by Brazil's benchmark IPCA (the Extended National Consumer Price) index rose 0.46% last month, above the market forecast of 0.42%, according to a Reuters poll of economists, up from the 0.38% increase in April.
• Meanwhile, 12-month inflation in Latin America's largest economy hit 3.93%, up from 3.69% in the previous month and above the expected 3.89%. The statistics agency noted that recent devastating floods in the Rio Grande do Sul, a major farming state, contributed to the rise in food costs and the inflation outturn.
• The data puts the monetary authority's ongoing easing cycle at risk, economists say, with investors pricing in a pause in the rate-cutting process when policymakers meet again later this month.
• In May, Brazil’s central bank cut its benchmark rate by 25 basis points (0.25%) to 10.50% after six reductions twice that size. Board members have voiced concerns about rising inflation expectations for this year and the next. The bank targets a 3% inflation rate, with a tolerance band of plus or minus 1.5 percentage points.

(Source: Reuters)