Brazil central bank Governor Roberto Campos Neto said a tight labor market has made the task of taming inflation a challenge, as the process to lower price pressures back to goal has been slower than anticipated.
“It’s been challenging to have a disinflation process with tightness in the labor market, especially in emerging markets like Brazil,” he said on Saturday at the Kansas City Fed’s annual conference in Jackson Hole, Wyoming. He also said consumer price increases are picking up across Latin America.
“Brazil always had a history of higher inflation than the other EMs but then we are at this point right now which is stalling,” in the disinflation process, he said. Some of that “has to do with: How do you continue this process with labor tightness?”
Policymakers led by Campos Neto have held rates steady at 10.5% after pausing a nearly yearlong easing cycle in June. Annual inflation hit the ceiling of the tolerance range in July, and gauges of activity have soared past estimates. On top of that, central bankers have been monitoring the jobs market looking for signs of renewed price pressures as services costs pick up.
Transfer programs from the government, once used to soften the impacts of the pandemic on the jobs market, have increased lately, Campos Neto said on Saturday. Yet, improving expectations about the country’s fiscal outlook have helped lower Brazil’s rates in the past, supporting the idea that the more coordinated fiscal and monetary policies are “the more effective you are,” he added.
Central bankers across the globe “need to understand that inflation is converging but the process had a significant cost on society,” he said.
In a series of public speeches this week, many Brazil central bankers including Campos Neto said they remain data-dependent and refrained from giving guidance on rates. Campos Neto has said Brazil’s inflation should slow in coming months, adding that the bank is willing to lift borrowing costs if needed.
Still, traders and a growing number of economists expect the central bank to reverse course and start lifting borrowing costs as soon as next month.
Brazil President Luiz Inacio Lula da Silva, who has slammed high borrowing costs as an obstacle to growth, will soon nominate a replacement for Campos Neto before the current governor’s mandate ends in December.
Monetary Policy Director Gabriel Galipolo, an ally of Lula who is favored to become the next governor, said this week that a hike is on the table for the next interest rate decision in September.
Analysts surveyed by the central bank forecast consumer price increases will remain above the 3% target through at least 2027.
This article was generated from an automated news agency feed without modifications to text.
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