Brazil’s Inflation Accelerates After Electricity Prices Surge

(Bloomberg) -- Brazil’s annual inflation sped up roughly in line with estimates in September after the nation’s energy regulator hiked electricity costs in response to the worst drought on record.

Official data released Wednesday showed prices rose 4.42% from a year earlier, just below the 4.44% median estimate of economists surveyed Bloomberg. On the month, they increased 0.44%.

Policymakers are raising interest rates as price pressures build and investors grow uneasy about the stewardship of Latin America’s largest economy. Growth has surged past expectations this year on a hot labor market and increased public spending under President Luiz Inacio Lula da Silva.

Those factors have helped push the annual inflation rate well above the central bank’s 3% target despite double-digit borrowing costs.

Further complicating the outlook, power regulator Aneel began applying additional charges to electricity bills at the start of September in response to sinking reservoir levels at hydroelectric plants. About two-thirds of Brazil’s power supply comes from hydro, and prices are set to climb even higher in October due to lack of rainfall.

Inflation is picking up as markets monitor the change of governance at the central bank. On Tuesday the Senate confirmed Lula’s pick of Gabriel Galipolo to succeed current Governor Roberto Campos Neto, whose term ends in December.

Galipolo is an ally of the leftist president and the bank’s current monetary policy director, and some investors are skeptical that he will be willing to sacrifice economic growth to curb price increases.

--With assistance from Giovanna Serafim.