Brazil's inflation rate decelerated in January compared to the previous month, though the 12-month rate remained above the upper end of the central bank's target range, indicating expectations for another rate hike next month.
In Latin America's largest economy, the benchmark IPCA index showed a 0.16% increase in consumer prices last month, down from a 0.52% rise in December, aligning with analysts' forecasts. This marked the lowest January price hike since Brazil adopted the real currency in 1994, mainly due to decreased housing expenses following a substantial drop in electricity prices.
The annual inflation rate eased to 4.56% from 4.83% in the prior month. The central bank of Brazil aims for inflation at 3%, with a permissible deviation of 1.5 percentage points, prompting recent tightening of monetary policy to bring it back to this target.
In January, policymakers unanimously agreed on a 100-basis-point rate increase to 13.25%, continuing the tightening cycle with another anticipated hike in March.
Despite the latest inflation data, economist Kimberley Sperrfechter from Capital Economics believes another rate hike is looming, stating that inflation expectations are still unsteady. While predicting that March's hike may conclude the tightening measures, she cautioned that risks favor further rate increases.
Annual inflation is projected to remain above 4.5% until June, but an optimistic outlook is influenced by a strong agricultural harvest and currency appreciation. Food and beverage prices edged up by 0.96% in January, down from 1.18% in the previous month.
Rafaela Vitoria, Inter's chief economist, highlighted the positive decline in food prices alongside persistently high service costs, maintaining the outlook for a 100-basis-point rate rise in the upcoming month. Looking forward, Vitoria emphasized the importance of monitoring economic activity and labor market trends post-May, expressing hope that a significant slowdown could aid in curbing inflation.