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Investing.com -- Brazil’s headline inflation rate has seen a further increase, reaching 5.3% year-on-year in the first half of March.
The Central Bank of Brazil, known as Copom, appears to be disregarding the recent weak activity data, and with the likelihood of inflation rising further, anticipates more monetary tightening in the upcoming months.
The inflation rate has risen from 5.0% year-on-year, aligning with the LSEG consensus forecast, although it was softer than the predicted rise to 5.6% year-on-year. The data breakdown revealed a second consecutive monthly increase in food inflation, which now stands at 7.3% year-on-year. This is partly due to a significant rise in the cost of eggs.
However, inflation has also increased in other major categories, including personal expenses, transport, clothing, and housing.
Underlying price pressures seem to have strengthened, causing concern for Copom. The estimated underlying core services inflation, which excludes volatile items like airfares, reached its highest level since mid-2023 last month, keeping Copom officials in a hawkish mood.
Last week, Copom increased the Selic rate further by 100 basis points, bringing it to 14.25%. Copom signaled that more tightening is to be expected, as it continues to prioritize tackling inflation over concerns about the economy’s weakness.
"With the headline rate likely to trend upwards to 6% year-on-year over the coming months, we expect an additional 75 basis points of tightening over the next couple of meetings," Capital Economics analysts said in a note.
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