As Anger Rises Over Soaring Inflation, Brazil’s Bolsonaro Backs Central Bank Chief

Runaway inflation in the US may be “transitory” – at least according to pundits, experts and central bankers – but in Brazil, where CPI just the highest since 2016 at 9% despite the central bank’s earnest efforts to tame soaring prices, nobody harbors such delusions. It’s getting so bad that Brazil’s inflation problem is starting to dent the popularity of the country’s president, Jair Bolsonaro who according to Bloomberg is “growing uneasy about Brazil’s inflation in the run-up to general elections next year”, but despite his public complaints about rising prices, he won’t interfere with the central bank, Bloomberg reported citing five sources.

On Friday, the Associated Press reported that Bolsonaro has privately regretted signing a law that gave formal autonomy to the central bank and has considered interfering with the institution. The president’s chief of staff, Ciro Nogueira,  denied the report in a series of posts on Twitter in which he called the episode an “imaginary bonfire.”

Still, where there is a bonfire, imaginary or otherwise, there is smoke, and Bolsonaro has for months complained about rising fuel and cooking gas prices that are eroding his popularity. While inflation is running at an annual rate of almost 9%, fuel costs have soared 44% over the past 12 months, hurting some of the president’s main backers including truckers (as a reference, US inflation isn’t that much lower, but in America anger over rising prices is far more subdued due to stimmies which have made the impact of inflation less noticeable for now).

When a social media follower complained about the price of gasoline over the weekend, the president tried to divert responsibility saying state governors tax fuels too much.

But while Bolsonaro has kept the public discourse civil, his discontent behind closed doors runs deeper. He was particularly annoyed by remarks made by Campos Neto last week during a Council of the Americas event in which the central banker linked an increase in inflation expectations to political infighting, Bloomberg reported although adding that those complaints are part of the president’s “mercurial personality” – a term the media giant never used when describing Donald Trump – and show no intention to intervene in the way the central bank works, nor to make changes in the economic team at the moment, the sources said.

For his part, central bank chief Roberto Campos Neto remains highly regarded within the Bolsonaro administration and also has the backing of key congressional allies, including lower house Speaker Arthur Lira. Campos Neto has been under pressure to bring inflation down after an ultra-hawkish monetary policy did little to improve expectations. After four aggressive interest-rate hikes since March and another one planed for September, inflation expectations for 2022 are still wildly above next year’s 3.5% target.

Furthermore, even if Bolsonaro wanted to fire Campos Neto, he would have to find a way to bypass the bank’s new autonomy law. The legislation, approved by congress earlier this year, establishes that central bank board members can’t be removed before the end of their mandates; Campos Neto’s term finishes on the last day of 2024.

Brazil’s Supreme Court was expected to rule on Wednesday on a case that questions the constitutionality of that law, but the institution delayed a ruling on the constitutionality of the law, which investors view as a key piece of legislation considered by investors as a victory for monetary policy making in Latin America’s largest economy. The justices are discussing a case brought to the court by two opposition parties that claim the original proposal should have been introduced by the nation’s president, and not by lawmakers as it was. Two of them had voted – one against and the other for upholding the law – when chief Justice Luiz Fux adjourned the session, saying it will resume Thursday.