• Brazilian cost-of-living estimates have risen again

    Brazil’s central bank chief said consumer price forecasts will improve, pushing back hours after a closely-watched survey showed economists lifting their 2024-2026 inflation estimates further above target.

    While cost-of-living estimates have risen again due to “recent noise,” they should stabilize and then improve with time, Roberto Campos Neto said at an event on Monday. “I think one can be optimistic,” he said.

    Swap rates extended drops as Campos Neto also said that, in time, markets will understand the bank’s split rate decision this month was technical. Contracts maturing in January 2027 fell 12 basis points while most rate curves across Latin America remained relatively stable during US and UK holidays.

    Brazil investors are testing the central bank on its commitment to the 3% inflation target, and most traders expect policymakers to pause their easing cycle in June. Last week, analysts sounded the alarm on the consumer price outlook at a private meeting with some of the monetary authority’s directors. Most of those analysts argued there’s no more room to lower rates. 

    Read More: Brazil Analysts Rebuff New Rate Cuts on Growing Inflation Risks

    Campos Neto said that inflation expectations shifted due to factors including the global economic changes, concerns over domestic fiscal policy, doubts over who will become the next central bank head when his mandate ends and new uncertainty stemming from historic floods in Brazil’s south.

    Inflation forecasts for the end of 2024 and 2025 rose to 3.86% and 3.75% from 3.8% and 3.74%, respectively, according to a weekly central bank economist survey published earlier Monday. Analysts also lifted their December 2026 estimates to 3.58% after they had remained steady at 3.5% for nearly a year.

    “Everything is pointing to a pause” in rate cuts, said Silvia Matos, an economist at Fundacao Getulio Vargas. Policymakers should now stick to a hawkish tone to bring estimates of future price increases to their goal. “Otherwise they will send a message that worsening inflation estimates don’t matter,” Matos added. 

    Analysts in the central bank survey still bet on another quarter-point drop in June, with the benchmark Selic falling to 10% at year’s end and 9% in 2025. Still, most now see a pause in July with policymakers resuming their monetary easing in December. 

    Split Vote

    Central bankers led by Campos Neto cut interest rates by quarter-point to 10.5% on May 8 in a split vote with all four board members tapped by President Luiz Inacio Lula da Silva backing a larger, half-point reduction. 

    The bank’s communication since then hasn’t defused fears that the institution will become more tolerant toward inflation once Campos Neto’s term ends in December, former Governor Gustavo Loyola said in an interview this month. 

    Read More: Brazil Central Bank Needs More Unity on Target, Ex-Governor Says

    Campos Neto and Economic Policy Director Diogo Guillen have recently stressed their concerns regarding higher inflation expectations, saying they are bad news for the monetary authority. 

    Top banks such as Wells Fargo and UBS now bet policymakers will pause their easing cycle next month. 

    Last week, Finance Minister Fernando Haddad said the bank’s 3% inflation goal is “demanding” while noting that the government remains committed to it. 

  • More than 40 people missing after deadly Brazil cyclone

    Story points below:

    • There are still 66 people unaccounted for a month after a fire destroyed the town of Lahaina in Maui. The official death toll remains at 115, with only 60 victims identified so far.
    • Families of the victims face difficulties in dealing with their affairs, including property and insurance issues. Obtaining death certificates could take months, and the release of remains is on hold until the burn area is cleared.
    • The cleanup of toxic debris will take about a year and cost $1 billion. The state is asking property owners to consider long-term rentals for the displaced, while FEMA provides housing assistance. The future of Lahaina and its rebuilding remains uncertain.

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  • Storm in southern Brazil kills 21

    The death toll in southern Brazil from a tropical storm that caused flooding in several cities has reached 21, authorities in Rio Grande Do Sul state said Tuesday.

    “Rio Grande is in mourning. There are now 21 confirmed victims of the rains that began on Sunday. We are dismayed by the lethality of this climatic event and are mobilized to save everyone who is still in danger,” Governor Eduardo Leite wrote on X, formerly known as Twitter.

    According to Leite, most of the deaths have occurred in Mucum, a small municipality of 4,961 inhabitants located in the state’s center, where 15 bodies were recovered after the Taquari River overflowed its banks and completely flooded the region.

    According to the latest civil security report, 66 municipalities have been impacted so far, with 2.7 million inhabitants affected by the heavy rains and the central and northern areas of the state suffering the most damage.

    So far, authorities have reported that 2,984 people have been displaced and up to 1,650 people left homeless.

    Local media have reported that fire department and civil defense personnel have not been able to attend to all the victims of the flooding caused by the cyclone, forcing people to climb onto their roofs to avoid the floods.

    The federal government will dispatch a special rescue team on Wednesday.

    Through his X account, Brazilian President Luiz Inacio Lula da Silva expressed his concern and support for the cyclone victims on Monday, when the number of victims was only four.

    “I would like to express my solidarity with the people of Rio Grande do Sul, who are experiencing heavy rains that have already caused the death of at least four people. The head of civil defense is going to the state to help remedy the problems caused by the heavy rains. We will do everything we can to help the people of Rio Grande do Sul get through this time,” he said.

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