By Jeffrey T. Lewis
SÃO PAULO--Brazil's inflation accelerated in August after power bills rose, but that shouldn't stop the country's central bank from continuing its announced cycle of interest rate cuts, economists said.
Consumer prices increased 0.23% from July, and rose 4.61% from a year earlier, the Brazilian Institute of Geography and Statistics, or IBGE, said Tuesday. In July, prices rose 0.12% from the previous month and increased 3.99% from a year earlier.
The increase in the month was below market expectations after several different segments of the inflation calculation had smaller increases than forecast, said Banco Bmg Chief Economist Flavio Serrano. Those better numbers point to a favorable inflation situation, though some segments, such as food and service prices, could start to increase again in coming months, he said.
Even with the outlook for faster inflation during the rest of this year, Brazil's central bank should continue to cut its benchmark lending rate into next year, Serrano said. The bank lifted the rate, known as the Selic, to 13.75% in August of 2022 after a year and a half of hikes as it worked to slow inflation.
The bank then left it at that level until last month, when it cut the key rate by half a percentage point, to 13.25%, and said it expects to continue cutting at that pace in coming months.
"Just because inflation will get a bit worse, that doesn't mean the central bank will stop cutting rates," he said. "The inflation scenario is positive and it points to a continuing rate cutting cycle."
The biggest impact on inflation in August came from housing prices, including electricity costs. The mammoth Itaipu power station on the Paraná river between Brazil and Paraguay generated a profit in 2022. In July some of that money was returned to Brazilian consumers, in the form of a one-time discount on their electric bills, and in August power bills rose again.
Housing prices, which include electric bills, rose 1.11% in August after declining 1.01% in July. Residential power prices rose 4.59% in August, also influenced by rate increases in some Brazilian cities.
Write to Jeffrey T. Lewis at jeffrey.lewis@wsj.com
(END) Dow Jones Newswires
09-12-23 0915ET
