Brazil's Inflation Finishes 2016 Within Target Range - plus55


A lower inflation rate could lead to interest rate cuts
Brazil Business

For the first time in two years, Brazil’s inflation rate finished the year within the government’s target range. According to the Brazilian Institute of Geography and Statistics (IBGE), the 2016 rate finished at 6.29 percent.

In December, prices rose 0.30 percent – less than Bloomberg’s projection of 0.34 percent.

It’s not all good news, however. The inflation lowered due to Brazil’s sharp recession. As unemployment rose to a record high, consumption decreased. With less demand for products and services, prices have gone down.

In 2015, Brazil’s inflation rate reached a decade-high 10.67 percent. It was a result of former President Dilma Rousseff’s choice to artificially control prices, especially electricity and oil. When the government wasn’t capable of keeping prices under control, they exploded.

In 2016, the food and beverage sector had the largest impact on the country’s inflation, with prices rising 8.62 percent. On the other hand, electricity became 3.7 percent cheaper.

Interest rate cuts on the horizon?

For most of the year, Brazil’s Central Bank was expecting to miss the target range for the third year in a row. For this reason, the bank’s monetary policy committee will start cutting interest rates from 14.25 percent.

The committee will hold a meeting on Wednesday, when experts forecast a reduction of 50 basis points to 13.25 percent.