Mexico and Brazil recorded inflation below forecasts
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The consumer prices in Brazil and Mexico rose less than expectedas their central banks battle above-target inflation and investors weigh the odds for more interest rate hikes.

The data from brazil inflation published on Thursday showed that the prices rose 0.53% monthly in November, below the median estimate of 0.55% from a Bloomberg survey. In Mexico, the CPI increased by 0.56% in the same periodbelow the projected median of 0.64%, although core inflation, which excludes fuel and food, accelerated more than expected.

Central bankers in both countries are grappling with above-target inflation and consumer price threats that may trigger further rate hikes. The plans of the president-elect of Brazil, Luiz Inacio Lula da Silvaof expanding public spending risk pushing up cost-of-living increases, while Mexico is grappling with the inflationary effects of rising food prices and Russia’s invasion of Ukraine.

Brazil: analysts foresee increases in interest rates and inflation

In Brazil, the transportation costs increased by 0.49% in mid-November after registering a fall of 0.64% the previous month. The food and beverages rose 0.54%while healthcare increased by 0.91%.

The nation’s central bank raised borrowing costs by 11.75 percentage points in a year and a half to combat price shocks, but halted its tightening cycle in September.

The president of the monetary authority, Roberto Campos Neto, said on Friday that there is still “high uncertainty” regarding the fiscal outlook, which, in turn, is a key input in the balance of risks for monetary policy. During a Bloomberg event in São Paulo, he said that he will do “whatever it takes” to bring inflation back to target and called for “coordination” between fiscal and monetary policy.

Brazil inflation beats estimates as runoff election nears

Concerns about Brazil’s public accounts and a potential increase in public spending are fueling market bets that policymakers will have to postpone cutting interest rates, and indeed may have to. raise them again in early 2023. Congress is expected to approve next week the Lula’s multi-million dollar budget proposal.

“The challenging current and prospective inflation environment, and restrictive signals from major central banks justify a conservative calibration of monetary policy over a reasonable period of time,” Alberto Ramos, chief Latin America economist at Goldman Sachs & Co., in a research note on Brazil.

Brazil’s central bank targets a annual inflation of 3.5% this year and 3.25% in 2023.

Mexico’s inflation slows more than expected in October

Debate in Mexico

In Mexico, airline tickets, electricity and fast food contributed to the increase in consumer prices in early November. The Annual inflation decreased to 8.14%, above the target of 3%.

This month, the central bank raised its benchmark rate to a record 10%, in its fourth consecutive 75 basis point increase. Board members have been debating whether now is the time to slow the pace of adjustment, while sub-governor Gerardo Esquivel voted for a smaller, half-point increase in the latest decision.

Board member Galia Borja has since told Bloomberg News that the central bank could see a way to disassociate itself from hikes by the US Federal Reserve, which Mexico often follows. Meanwhile, her colleague Jonathan Heath said he did not expect such a change any time soon.

Economists warn that Mexico’s core inflation, which has accelerated to 8.66% from a year earlier, shows no signs of cooling yet and could complicate hopes of easing the pace of rate hikes.

“We see that they are going five consecutive fortnights in which we are observing a slowdown in inflation, of annual inflation, however, this annual slowdown is mainly explained by the drop in non-core inflation,” said Janeth Quiroz Zamora, vice president of economic studies at Monex Casa de Bolsa. “We see a significant slowdown in the energy sector, it was something that was already expected.”

LM/ED

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