Consumer prices in Brazil rise more than expected in July

Consumer prices in Brazil rose more than what the markets had initially expected in July as food prices remained on the upside, exerting pressure on policymakers to bring down borrowing costs.

The benchmark IPCA consumer price index climbed 0.52 percent after a 0.35 percent rise the previous month. That was more than the median forecast for a 0.45 percent increase from 38 economists surveyed by Bloomberg. Twelve-month inflation decelerated to 8.74 percent, from 8.84 percent in June.

Higher-than-expected inflation this year has forced the central bank to keep its benchmark Selic rate near 10-year high even as the economy struggles with crippling recession that is now in its second year.

Further, food and beverage prices rose 1.32 percent in July, following a 0.71 percent increase in the previous month and accounting for nearly two-thirds of the month’s inflation. Milk alone accounted for more than one-third of price increases in July. The cost of personal expense items rose 0.7 percent, double the pace of the prior month.

Moreover, the central bank has targeted to reach 4.5 percent inflation this year, although prices have not fallen within the target band since the end of 2014. The benchmark rate at its highest level since 2006 has constrained activity in Latin America’s largest economy, which according to a Bloomberg survey of economists, will shrink 3.5 percent this year.