By Gabriel Araujo
SAO PAULO (Reuters) – Inflation figures launched on Wednesday painted reverse eventualities for Latin America’s two largest economies, indicating that Brazil will preserve tightening its financial coverage to fight rising costs whereas Mexico brings its rate of interest down.
The annual headline inflation figures within the two international locations didn’t differ that a lot from one another, however their value tendencies diverged and will preserve financial coverage within the rising nation friends shifting in several instructions.
In Brazil, annual inflation accelerated in September to 4.42%, in step with market expectations however above the 4.24% reported within the earlier month, closing in on the higher restrict of the central financial institution’s goal vary.
Policymakers within the nation have vowed to carry inflation again to their 3% goal, which has a tolerance margin of plus or minus 1.5 share factors, that means they are going to seemingly hike rates of interest once more at their subsequent assembly in November.
The speed-setting committee, referred to as Copom, had already voted unanimously to embark on a tightening cycle final month, elevating borrowing prices by 25 foundation factors to 10.75% amid inflationary pressures and powerful financial exercise.
“September’s inflation figures will solely add to the hawkish temper on the central financial institution as Copom seeks to shore up its credibility amid considerations concerning the politicization of financial coverage,” Capital Economics economist Jason Tuvey stated.
Greater electrical energy and meals costs amid a serious drought have weighed on Brazil’s inflation index.
In Mexico, in the meantime, 12-month headline inflation slowed to 4.58% in September from 4.99% within the earlier month, nonetheless nicely above the three% goal however sustaining a downward development that has allowed the Financial institution of Mexico (Banxico) to decrease borrowing prices.
Policymakers in Latin America’s second-largest economic system delivered charge cuts thrice this yr, together with a 25-basis-point discount final month that introduced the benchmark charge right down to 10.50%.
“This can be a good inflation report and helps the case for additional financial coverage easing,” Pantheon Macroeconomics’ Andres Abadia stated. “Underlying inflation pressures proceed to ease, and we anticipate a continued decline in inflation throughout This fall.”
Polls of personal economists in every nation underscore how Brazil’s and Mexico’s financial insurance policies diverge in the meanwhile.
Whereas in Brazil they present rates of interest are prone to finish this yr at 11.75%, implying 50-basis-point hikes at every of the central financial institution’s two remaining 2024 conferences, in Mexico they point out two cuts of 25 foundation factors to 10% by year-end.
Banxico governor Victoria Rodriguez acknowledged the financial institution’s governing board could even think about bigger cuts going ahead, as inflation cools.
Nevertheless, the easing coverage has brought on a rift within the board, with some governors calling to carry charges till a clearer downward development is seen throughout their value indicators.
By end-2025, the polls counsel, Brazil’s charge can be introduced down slightly to 10.75%, whereas in Mexico they may dip to eight%.
Brazil’s economic system has shocked to the upside and will develop round 3% this yr, whereas Mexico’s gross home product progress is seen at half that by analysts, additionally an element policymakers take into consideration.
“We anticipate additional will increase to the Selic to 12% by early 2025,” Capital’s Tuvey stated about Brazil, whereas including that in Mexico the inflation report “helps our view that Banxico will reduce charges by 25bp at every of the remaining conferences this yr.”