Brazil Finance Chief Says Severe Weather Risks Fanning Inflation

(Bloomberg) — Brazil Finance Minister Fernando Haddad said the government is worried a resurgence in extreme weather will spur inflation as central bankers are expected to lift the interest rate starting next week.

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The nation’s persistent dry spell can stoke food and energy price increases, Haddad told reporters in Brasilia on Wednesday. At the same time, such cost rises are not easily controlled with borrowing cost hikes, he said.

“The central bank has the technical framework to make the best decision,” Haddad said. “We’ll wait for next week’s monetary policy decision.”

Latin America’s largest economy is on alert as the worst drought in 40 years keeps wildfires burning and puts crops and energy supply at risk. Those woes complicate the outlook for the central bank, which is under pressure to start rate hikes Sept. 18 in response to above-target consumer price gains. The government has consistently decried high borrowing costs as an impediment to faster growth.

From May through August, some key agriculture areas faced the driest weather since 1981, according to natural disaster monitoring center Cemaden. The lack of rainfall poses risks for crop supplies in a world that’s become increasingly dependent on Brazil for everything from sugar to coffee and soybeans.

Brazil’s government will raise its 2024 economic growth projection, Haddad said, adding that gross domestic product should expand above 3% this year.

Analysts surveyed by the central bank expect policymakers to lift the benchmark Selic to 11.25% in December from its current level of 10.5%.

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