Brazil Inflation Reaches 8.89% for 12 Months Ending in June; the Highest Since 2003

07/08/2015 - 12h05

Brazil's official inflation for the 12 months ending in June 2015, measured by the Extended National Consumer Price Index (IPCA), increased to 8.89%, according to the Brazilian Institute for Geography and Statistics (IBGE) information released on Wednesday morning (8).

This is the highest score since December 2003 (9.30%) in the IPCA index.

Comparing June with May, the IPCA reached 0.79%, the highest rate for June since 1996 (1.19%), when the country made the transition from hyperinflation to more moderate rates.

Economists and financial market analysts consulted by Bloomberg expected the index accelerated to a rate of 0.82% in a month and 8.94% in the 12 months.

Inflation measured by the IPCA was thus higher than in June last year (0.40%) and in May this year (0.74%).

In the first half, the cumulative inflation increase was 6.17%, the highest for the semester since June 2003 (6.64%).

FOOD AND GAMES

The pace of inflation in June this year was atypical. Rates are historically low in the middle of the year, a period marked by the reduction in food prices.

It is different this time. Food prices are pushing inflation up, as rainfall patterns have affected products such as onions and tomatoes.

Prices of the lottery games of Caixa Econômica Federal were adjusted from 40% to 100%, what helped to push inflation up in a quite atypical way.

Midyear prices are high after a run-up in the first quarter: 1.24% (January), 1.22% (February) and 1.32% (March).

In the early months of the year, inflation was pushed up especially by the electricity tariff adjustment. Gas prices also boosted the official inflation rate earlier this year.

GOVERNMENT

The prices keep distancing from the centre of the inflation target of 4.5% per year, with plus or minus 2 percentage point margin of error.

Finance Minister, Joaquim Levy, expects inflation starts to slow down at the end of this year towards the centre of the target in 2016.

For that to happen, the Central Bank already raised the basic interest (Selic) to 13.75% per year. It's a way to increase credit rates and discourage consumption.

Brazilian government has also helped to fight high prices by reducing their own spending, the so-called fiscal adjustment.

In the last projection survey conducted by the Central Bank, economists predicted inflation rates of 9.04% in 2015 and 5.45% in 2016.  

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