Latin America's two largest economies struggle with lingering inflation

Brazilian central bank chief Roberto Campos Neto said he was surprised by worse-than-expected inflation while in Mexico inflation exceeds forecasts and reaches a two-decade peak

A costumer buys meat at a supermarket in Rio de Janeiro, Brazil May 10, 2019.
Photo: REUTERS/Pilar Olivares
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Brazilian central bank chief Roberto Campos Neto said on Wednesday he was surprised by stubborn price pressures that had resulted in worse-than-expected inflation, while reaffirming the bank’s aim to bring inflation down to its target range.

The comments came amid growing market expectations that inflation next year could exceed the target of 3.5%, with a tolerance margin of 1.5 percentage points on either side.

The Brazilian Institute for Applied Economic Research (Ipea in Portuguese) raised its projections for inflation in 2021 and 2022 considering the strong pressure of prices in the country and in the world. Ipea estimates that inflation will reach close to 10% this year.

READ ALSO: Latin America is being forced to choose between stimulus and fighting inflation

According to the institute, the Extended National Consumer Price Index (IPCA) may end 2021 at 9.8%, against a rate of 8.3% forecast in September. The projection is well above the official target for this year.

“We have been surprised by how consistent some (price) shocks have been,” Campos Neto said at a conference sponsored by Bank of America. “We have highlighted that our objective is to bring inflation to the target. And we also highlighted that the qualitative components of inflation have worsened much more than we expected,” he added.

READ ALSO: Inflation revival is a victory, not a defeat, for central banks in major economies

In October the central bank raised interest rates by 150 basis points to 7.75% and signaled another such hike this year, stepping up the world’s most aggressive tightening cycle as inflation moves into double figures.

But some market experts have begun to think an even bigger rate hike might be necessary due to stubborn inflation and uncertainty around fiscal discipline.

Campos Neto said the central bank would continue to seek the right pace of raising interest rates, avoiding the mistakes of hiking them too fast or too slowly.

Mexico: inflation exceeds forecasts and reaches a two-decade peak

It is not only Brazil that faces a tough time due to inflation. Latin America‘s second-largest economy, Mexico, is also struggling with inflation that accelerated more than expected in the first half of November, surpassing 7%, the highest rate in more than 20 years, according to official data released on Wednesday, increasing pressure on the local central bank to tighten monetary policy further.

READ ALSO: Bank of Mexico concerned about facing inflation, Fed normalization at same time

Figures from the national statistics agency Inegi showed that inflation in early November was 7.05%. This was the sharpest rise in prices since the second half of April 2001, the data showed.

Inflation was 6.36% in the second half of last month. The Mexican central bank’s inflation target is a 3% rate, with a tolerance margin of 1 percentage point more or less.

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