Brazil Inflation Slows Again, Electrifying Lula’s Rate Cut Push
Brazil’s inflation rate has slowed again, giving a boost to former President Luiz Inacio Lula da Silva’s push for the central bank to cut interest rates.
The benchmark IPCA consumer price index rose 4.5% in the 12 months through April, the national statistics agency said on Tuesday. That was the slowest pace since October and below the median forecast of 4.6% in a Bloomberg survey of economists.
The slowdown in inflation has been a boon for Lula, who has been pushing for the central bank to cut its benchmark Selic rate from the current 2.25%. He has argued that the bank should focus on reviving the economy, which is still struggling to recover from the pandemic-induced recession of 2020.
Inflationary Pressures
The IPCA index was up 0.3% in April from the previous month, in line with the median forecast of 0.3%. The core index, which excludes volatile items such as food and fuel, rose 0.2%, below the median forecast of 0.3%.
The slowdown in inflation was driven by a drop in food prices, which fell 0.2% in April from the previous month. Prices for transportation, housing and health care also declined.
The central bank has been trying to keep inflation in check by raising interest rates, but the recent slowdown has given Lula and other proponents of rate cuts more ammunition.
Central Bank’s Response
The central bank has been reluctant to cut rates, citing the need to keep inflation in check. But the recent slowdown in inflation has given the bank more room to maneuver.
The bank’s board is scheduled to meet on May 26 to decide on the Selic rate. Analysts expect the bank to keep the rate unchanged, but some are predicting a cut of as much as 50 basis points.
The bank has also been trying to stimulate the economy by buying government bonds and other assets in the open market. The bank has been buying up to $2 billion a day in bonds since April, and the program is expected to continue until the end of the year.
Economic Recovery
The Brazilian economy is still struggling to recover from the pandemic-induced recession of 2020. The economy shrank by 4.1% last year, and the central bank expects it to grow by 3.5% this year.
The government has been trying to stimulate the economy by increasing public spending and cutting taxes. It has also been pushing for more private investment, particularly in infrastructure.
The government has also been trying to reduce the country’s debt burden, which is currently at a record high. It has implemented a number of austerity measures, including cutting public sector wages and pensions.
Political Implications
The inflation rate has been a key issue in the upcoming presidential election. Lula, who is running for president, has been pushing for the central bank to cut interest rates in order to stimulate the economy.
His main rival, President Jair Bolsonaro, has been more cautious, arguing that the central bank should focus on keeping inflation in check.
The election is scheduled for October, and the outcome could have a major impact on the direction of the economy. If Lula is elected, he is likely to push for more aggressive rate cuts and increased public spending.
Outlook
The recent slowdown in inflation has given the central bank more room to maneuver. But the bank is likely to remain cautious, as it is still concerned about keeping inflation in check.
The outcome of the presidential election could also have a major impact on the direction of the economy. If Lula is elected, he is likely to push for more aggressive rate cuts and increased public spending.
The Brazilian economy is still struggling to recover from the pandemic-induced recession, and the government is trying to stimulate the economy by increasing public spending and cutting taxes. The central bank is also trying to stimulate the economy by buying government bonds and other assets in the open market.
The inflation rate has been a key issue in the upcoming presidential election, and the outcome could have a major impact on the direction of the economy.