SAO PAULO, Jan 24 (Reuters) - Brazil's annual inflation rate slowed less than anticipated in early January, according to official data released on Friday. This further solidifies expectations that the central bank will increase interest rates by 100 basis points at its meeting next week.
The IPCA-15 index showed consumer prices rising by 4.5% in the year through mid-January, marking a slowdown from the previous month's 4.71%, but surpassing the 4.36% forecasted by economists surveyed by Reuters, as reported by the IBGE statistics agency.
Despite the more aggressive rate trajectory projected for this year, Brazil's central bank continues to face a complex landscape characterized by strong economic activity, a constricted labor market, and inflation expectations that remain unmoored.
The central bank, committed to meeting its 3% inflation target, had previously raised the benchmark interest rate by a full percentage point to 12.25% in December and signaled similar adjustments over the next two meetings.
Inflation remains persistently above the central bank's target, with a resilient economy and ongoing fiscal anxieties, noted Jason Tuvey, Deputy Chief Emerging Markets Economist at Capital Economics, in a client communication.
Food and transportation prices contributed to the 0.11% increase in prices from the previous month to mid-January, according to IBGE. The rise was slower than the 0.34% reported in the prior month but exceeded the 0.03% decrease projected by economists in the Reuters survey.
While food prices remain a significant concern for the Brazilian government, with President Luiz Inacio Lula da Silva emphasizing the need to address them, a noteworthy drop in electricity prices helped offset the overall price pressure due to lower housing costs.
Andres Abadia, Chief Latin America Economist at Pantheon Macroeconomics, indicated, 'Inflation has notably rebounded in recent months, and forward-looking indicators paint a bleak short-term picture.' This suggests that the central bank will maintain its aggressive rate hikes, increasing rates by 100 basis points at the upcoming meetings.