Consumer Prices in Brazil Rise in September

By Luana Maria Benedito

SAO PAULO (Reuters) – Consumer prices in Brazil accelerated in September due to higher electricity and food costs amid a major drought, raising expectations for further interest rate hikes by the central bank.

According to government statistics agency IBGE, prices measured by the benchmark inflation index IPCA rose 0.44% in September. This is nearly in line with the 0.46% increase expected by markets but significantly up from the 0.02% decrease seen in August.

For the 12 months leading to September, consumer prices in Latin America's largest economy increased 4.42%, closely aligning with economists' forecasts of 4.43%.

IBGE reported that inflation figures were influenced by a 5.36% rise in residential electricity prices, primarily because the drought has impacted power costs since more than half of Brazil's electricity supply is sourced from hydroelectric plants.

Food and beverage prices also contributed to inflation, rising 0.50% in September, ending a two-month streak of negative readings, as meat prices increased.

Andre Almeida, IBGE survey manager, stated, "The strong drought and dry weather were factors that contributed to the decrease in meat supply. The off-season period is being intensified by the climate situation."

Finance Minister Fernando Haddad highlighted that the latest IPCA data demonstrates how the drought is influencing energy and food prices but reassured that core inflation is "under control."

XP economist Alexandre Maluf noted that while short-term inflation seems relatively stable, "economic fundamentals suggest that we should not see a convergence towards the target in the coming quarters."

Brazil's central bank aims for a 3% inflation target, with a tolerance margin of plus or minus 1.5 percentage points. The central bank's rate-setting committee, Copom, began an interest rate-hiking cycle last month with a 25 basis-point increase and indicated further tightening is expected.

Jason Tuvey, deputy chief emerging markets economist at Capital Economics, stated that September's inflation data will likely reinforce Copom's hawkish stance, predicting further increases to the Selic rate could reach 12.00% by early 2025.

Current futures pricing indicates a 95% chance of a 50 basis-point rate hike at the next policy meeting in November.