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Brazil’s Inflation Seen Slowing After Topping 10% in September

(Bloomberg) — Brazil’s consumer prices rose less than expected in September, supporting the central bank’s view that inflation peaked just above 10% and will start to slow as rising borrowing costs cool down the economy.

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Inflation accelerated to 10.25% from a year ago, its fastest pace since February 2016, and to 1.16% from the month prior, the national statistics institute reported Friday. Economists expected a monthly increase of 1.25%, according to a Bloomberg survey.

Housing costs that jumped 2.6% and transport prices that rose 1.8% were the major contributors to the monthly gain, the statistics agency said. Brazil’s central bank targets inflation at 3.75% for this year, and 3.5% for 2022.

Swap rates on the contract due on January 2023, which indicate market expectations for the benchmark rate by end-2022, fell 17 basis points in morning trading.

What Bloomberg Economics Says

“Brazilian inflation returned to double digits in September, but won’t stay there for long. We anticipate inflation will decline in the months ahead, though it won’t reach the center of the target (3.5%) by end-2022.”

— Adriana Dupita, Latin America economist

Click here to read the full report.

The central bank has lifted borrowing costs by 425 basis points since March in an effort to slow inflation brought on by the reopening of the economy. However, rising energy bills due to a severe drought and spiking commodity costs have pressured prices further. Investor concern over the government’s budget has contributed to the Brazilian currency’s slide in the second half of 2021, adding pressure to prices of imported goods.

In recent days, central bank chief Roberto Campos Neto has said that inflation should start to slow in October as policy makers work to hit their 2022 target.

Friday’s inflation data was the last full-month reading before the central bank’s Oct. 26-27 meeting to set the key interest rate, which they have already signaled will be hiked by one-full percentage point.

(Recasts lede, updates inflation contributors, market reaction in second paragraph.)

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