Brazil Analysts Lift Inflation Bets Again as New Rate Hike Looms

(Bloomberg) -- Brazil analysts raised their inflation forecasts for this year and next for the fourth straight week as investors mull whether Wednesday's expected interest rate hike will be the last in the central bank's cycle.

Consumer price increases will hit 7.89% in December and 4.10% at the end of 2023, higher than the prior estimates of 7.65% and 4%, respectively, according to a central bank survey published on Monday. Analysts also raised their key rate forecast for the end of next year to to 9.25% from 9% before.

Policy makers led by Roberto Campos Neto will likely raise rates by a full percentage point to 12.75% on May 4 to tame cost of living increases. What comes next is more unclear, as board members have signaled they are ready to wrap up the tightening cycle which has already added 975 basis points to borrowing costs in just over one year.

Latin America's largest economy has faced persistent energy shocks which drove annual inflation to 12.03% in mid-April, marking the highest level since 2003. Price pressures have recently shown to be widespread, affecting other sectors including services, food outside of the home and clothing.

“In a moment of heightened uncertainty domestically and globally, with no clarity on the strength or persistence of inflationary forces ahead and the high volatility of asset prices that impact inflation expectations, we believe that central bankers should avoid a commitment with the end of the cycle,” JPMorgan Chase & Co Brazil analyst Cassiana Fernandez wrote on Friday.

Central bankers target inflation at 3.5% this year and 3.25% next.

Campos Neto has warned about the potential impact on growth from raising interest rates too high. Economic activity rose 0.34% in February, missing the 0.4% median forecast, the central bank reported earlier on Monday.

Most analysts see growth at 0.70% this year.