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World

Brazil inflation ends 2020 at 4.5pc, above target and highest in four years

  • It was the second month in a row the benchmark annual IPCA consumer inflation rate has been above 4%.
  • The annual rate of 4.5% in December exceeded the 4.4% median forecast in a Reuters poll of economists and was higher than the central bank's year-end goal of 4.00%.
Published January 12, 2021

BRASILIA: Annual inflation in Brazil ended last year at 4.5%, official figures showed on Tuesday, comfortably above the central bank's year-end central target as food prices rose the most in nearly two decades.

It was the second month in a row the benchmark annual IPCA consumer inflation rate has been above 4%, having more than doubled from the record low below 2% in May.

The annual rate of 4.5% in December exceeded the 4.4% median forecast in a Reuters poll of economists and was higher than the central bank's year-end goal of 4.00%.

It was also the highest inflation for a calendar year since 2016, statistics agency IBGE said.

Food and drink prices rose 14.1% in the year, accounting for more than half of the overall annual increase and the highest since 2002, IBGE said.

The monthly rate of inflation in December was 1.35%, IBGE said, more than the 1.2% forecast in a Reuters poll, with a 2.9% rise in housing costs accounting for almost half the gains. It was the highest monthly rate since February 2003, and the highest for any December since 2002, IBGE said.

Central bank officials have insisted that the inflation spike in recent months is temporary and will soon pass as the "transitory" jump in food and commodity prices fades.

But at their last policy meeting in December, they said their forward guidance of keeping borrowing costs at a record low of 2.00% could be removed earlier than previously anticipated.

"Inflation is likely to remain significantly above target for much of this year, probably peaking close to 6% in Q2. This means that the central bank will probably begin to remove its forward guidance ... over the coming months," said William Jackson, chief emerging market economist at Capital Economics.

"But while we do expect a tightening cycle to begin late this year, weak core inflation means that interest rates are likely to rise much more slowly than most expect," he said.

The central bank's latest weekly 'FOCUS' survey of economists showed they raised their forecasts for the benchmark Selic interest rate to 3.25% at the end of this year and 4.75% at the end of next year.

Economists also pegged their average annual inflation forecasts for this year and next at 3.3% and 3.5%, respectively. The central bank's official 2021 and 2022 inflation central targets are 3.75% and 3.50%, respectively.

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