Brazil’s Inflation May Be Lower Than U.S. This Year, Guedes Says

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Brazil's inflation rate is slowing and may end up the year below that of the U.S. after the Latin American nation pulled monetary and fiscal incentives last year, Economy Minister Paulo Guedes said.

Consumer price gains will slow from its current 10% annual rate to about 5% by the end of 2022 after removing early the incentives given during the pandemic, Guedes told Bloomberg Television's Shery Ahn during an interview in New York.

“We contracted the fiscal policy during the recovery so there is no inflationary pressure,” he said on Monday. “Basically it's global inflation when we talk about inflation in Brazil.”

A year ago Latin America's largest economy embarked in an aggressive interest rate tightening cycle, increasing borrowing costs from a record-low 2% to 10.75% in an attempt to tame incipient inflationary pressures. Still, consumer price gains remain around a five-year high. The economy fell into recession in the second part of 2021 and is expected to grow just 0.3% this year.

U.S. consumer prices surged in January to a fresh four-decade annual high of 7.5%. Unlike Brazil's central bank, the Federal Reserve delayed monetary tightening and it only recently signaled it plans to start raising interest rates next month.

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Brazil is transitioning from a state-driven economy to one where the market plays a central role, Guedes also said during the interview. The country has 828 billion reais ($161 billion) of private investment commitments “to rebuild the Brazilian economy” in coming years in sectors including natural gas, oil, ports and infrastructure, he said.

“These are signed contracts, these aren't PowerPoints or plans,” he said. “This is reinvestment by the private sector for the next 10 years.”