Brazil Consumer Prices Jump Amid Soaring Costs of Food Staples

(Bloomberg) -- Brazil’s consumer prices rose more than forecast in mid-October amid surging food costs, fueling bets the central bank may lift its key rate by early next year.

The IPCA-15 index rose 0.94%, above the median forecast for a 0.83% increase from economists in a Bloomberg survey and more than double the previous month’s gain of 0.45%. It was the biggest monthly rise for mid-October since 1995, the national statistics agency reported on Friday. Annual inflation accelerated to 3.52%, still below the central bank’s 4% target for this year.

Central bank President Roberto Campos Neto has signaled plans to hold the key rate at a record low to boost an uneven recovery from the coronavirus-driven recession. Yet rising food and fuel prices, partly due to cash handouts to informal workers during the pandemic, have prompted investors to bet that policy makers will have to increase borrowing costs as soon as January to rein in inflation.

Read more: Brazil’s Top Forecasters See Inflation Accelerating in 2021

Costlier Food

Food and beverage prices rose by 2.24% from the previous month, representing the top inflation driver on the month, according to the statistics agency. A range of staples became more expensive, including rice with an 18.48% spike, tomatoes with a 14.25% jump and meat with a 4.83% rise.

At the same time, transportation costs increased by 1.34% on higher airfare prices. Education slipped by 0.02% as many schools remained closed amid the ongoing coronavirus pandemic.

In an interview last week, former central bank President Arminio Fraga said factors including a weaker currency, rising inflation expectations and an out-of-control budget deficit are leading to a “combustible” situation in Brazilian markets. He said the country needs a second fiscal anchor to maintain its credibility among investors.

Policy makers will hold their next rate-setting meeting on Oct. 28.

©2020 Bloomberg L.P.