The index rose 0.73% in December alone, IBGE said, above the 0.65% forecast in a Reuters poll, mainly driven by clothing prices, which rose 2.06%.
The final perception in 2021 is that the inflation rate exceeded both the central bank’s end-of-year target of 3.75% and the 5.25% limit of its tolerance range.
By law, the president of Brazil’s central bank, Roberto Campos Neto, will have to write an open letter explaining why the authorities exceeded the target’s tolerance margin. It is the sixth time this has happened since the current inflation targeting regime was created in 1999, the previous one in 2017.
Transportation was the main responsible for the sharp increase in prices in the largest economy in Latin America last year, with annual increases of 21.03%, driven by the 49.02% advance in fuel prices throughout of 2021.
House prices also contributed to the overall result, with an annual increase of 13.05%, affected by a 21.21% increase in electricity. Accelerating inflation pushed Brazil’s central bank into one of the most aggressive interest rate hike cycles in the world last year, raising the benchmark Selic rate to 9.25% in December from 2% in March.
Central bank officials have already indicated that they will apply another 150 basis point increase in February and said that the tightening of the country’s monetary conditions could extend until inflation expectations return to normal.
Analysts expect inflation and higher interest rates to weigh down the Brazilian economy in 2022, affecting household demand and discouraging corporate investment.
Source From: Ambito
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