Brazil inflation slows, central bank signals further rate hikes

Investing.com -- Brazil's yearly inflation rate slowed unexpectedly in the first half of December, even as central bankers plan additional significant interest rate increases by March.

Consumer prices increased by 4.71% from a year earlier, according to official data released on Friday. This is lower than the 4.83% median predicted by economists in a Bloomberg survey. In comparison to the previous month, prices rose by 0.34%.

In other economic news, unemployment in Brazil dropped to a low of 6.1% for the three months ending in November. This is the lowest level since the data series began in 2012.

In response to these economic conditions, Brazil's central bank raised interest rates to 12.25% this month. The bank also indicated plans to extend its tightening cycle, pushing the benchmark Selic rate to its highest level in eight years.

Driving these changes are rising food costs, particularly for meat, and inflation in the service sector, which exceeds the 3% target. Additionally, a weaker Brazilian real is increasing pressure on industrial goods prices.

Despite these challenges, a robust labor market is supporting consumer demand and contributing to economic growth that has outperformed expectations in 2024. Policymakers have noted, however, that the process of disinflation has come to a halt.

Gabriel Galipolo, set to become the central bank governor in January, has declared that any deviation from the bank's guidance would require a compelling reason.

In the face of high interest rates, outstanding loans grew by 1.2% in November, according to a central bank report released on Friday. Policymakers have expressed concern about stronger-than-expected credit flows, urging caution when personal default rates remain at 5.4% and household debt is around 48%.

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Source: Investing.com