Inflation in Brazil surpassed 5 points and worries Lula's socialist government.

Annual inflation in Brazil reached 5.06% in February, surpassing 5% for the first time since September 2023, which represents a negative blow for the government of Luiz Inácio Lula da Silva, according to official data from the Brazilian Institute of Geography and Statistics (IBGE).

This increase is considerably higher than the 4.56% recorded in January, largely due to a rebound in electricity prices, which rose 16.8% for households, the largest increase since 2003.

This increase in energy costs was the main cause of the monthly price increase, which rose 1.31%, the largest increase for a February in more than two decades.

In January, inflation had shown a slight deceleration, driven by a temporary discount on electricity bills thanks to the benefits of the Itaipú hydroelectric plant, key to energy production in the country.

However, the recovery of electricity prices  has reversed this trend in February, negatively affecting the inflationary outlook.

Additionally, education prices increased by 4.7%, reflecting the rise in school fees at the start of the academic year.

Despite these increases, food prices showed a slight deceleration compared to January, although several products, like coffee and eggs, continue to register strong price increases, with increases of up to 15.39% and 10.77%, respectively.

In response to these increases, Lula's government has announced measures to try to contain inflation, including the elimination of import taxes on products like meat, sugar, and olive oil.

Nevertheless, the recovery of inflation in February has significantly distanced Brazil from its inflation target, which is between 1.5% and 4.5%. Experts and financial institutions anticipate that inflation could reach 5.68% in 2025, reflecting a complicated scenario for the Brazilian economy.

The increase in inflation has also had repercussions on the country's economic policy. The Central Bank of Brazil has raised the interest rate several times, which is currently at 13.75%, with the aim of controlling inflationary advances.

Although it is expected that at the next meeting of the Monetary Policy Committee (Copom) an additional increase of 100 basis points will be approved, bringing the Selic rate to 14.25%, analysts do not foresee further adjustments in the short term, given that economic activity has shown weakness in the last quarter of 2023 and projections for the first quarter of 2024 are not promising.

Despite high inflation, some economists argue that the monetary adjustment cycle could be coming to an end, as the Central Bank might consider that current rates are sufficient to contain inflation, although additional adjustments of between 50 and 75 basis points might also be made if inflation shows no signs of slowing down.

In addition to the economic landscape, the increase in inflation has coincided with a very sharp drop in Lula's popularity.

According to a survey by the Datafolha institute, his government's approval rating fell to 24%, the lowest of his terms, reflecting growing discontent among the population due to the economic situation and difficulties in controlling inflation.

This decline in popularity could further complicate the government's management and its efforts to implement effective economic policies in a context of high inflation and strong economic slowdown.

Inflation in Brazil rebounded in February mainly due to the increase in electricity and education prices, raising concerns about families' purchasing power.

In addition to some unnecessary expenses made by the state, such as the organization of "free" concerts, they have contributed to the very high increase in the inflation index.

Government measures to reduce prices and the rise in interest rates are key responses to this scenario, but experts warn that  inflation could remain a challenge for the country's economy in the coming months, as no decrease is expected.