(Updates with economist comment in third paragraph.)
June 7 (Bloomberg) -- Brazilian consumer prices rose at their slowest pace since September last month, as a stronger currency cut costs for imported consumer products and fuel prices slumped.
Prices rose 0.47 percent in May, matching the median estimate in a Bloomberg survey of 39 economists and less than the 0.77 percent increase in April. While inflation last month slowed, annual price increases of 6.55 percent continued above the central bank’s target range and reached the fastest pace since July 2005, the government’s statistics agency said in a report distributed in Rio de Janeiro today.
“We are not so optimistic,” said Flavio Serrano, senior economist at Espirito Santo Investment Bank in Sao Paulo. “The breakdown was not as good as the headline rate. We believe we are likely to see a strong deceleration in June, but we do not see a strong change in terms of core inflation.”
Brazil’s government is trying to prevent Latin America’s biggest economy from overheating by reducing spending, increasing borrowing costs and implementing tighter liquidity requirements for banks to curb consumer lending growth. Record low unemployment is fueling consumer demand, while food and sugar-based ethanol prices surged in the beginning of the year after global commodity prices climbed and heavy rains disrupted Brazil’s harvest.
The yield on interest rate futures contracts maturing in more than two years sank, with those due January 2014 dropping 4 basis points, or 0.04 percentage point, to 12.43 percent at 9:50 a.m. New York time. Contracts due January 2013 fell 1 basis point, or 0.01 percentage point, to 12.5 percent. The real rose 0.4 percent to 1.5773 per U.S. dollar.
The May inflation number was influenced by seasonal factors, said Pedro Tuesta, a Washington-based economist for Latin America at 4Cast Inc.
“This is basically transport prices coming down after the ethanol supply came back to normal with the sugar cane production,” he said. “Home appliances are still flat, showing the impact of the real’s appreciation.”
Transportation prices, which rose 1.57 percent in April, slipped 0.24 percent last month, pushed down by a 0.35 percent decline in fuel prices, the report said. So-called core inflation, which strips out volatile fuel and food prices, remains at a level that means the central bank will need to continue to raise rates, Serrano said in a telephone interview.
Policy makers increased the benchmark rate by a quarter- point to 12 percent in April, after raising it half a percentage point in each of their previous two meetings. Traders are betting the central bank will raise borrowing costs a further 0.25 percentage point at their meeting tomorrow, according to Bloomberg estimates based on interest rate futures.
Inflation in imported goods was held down by a 3.27 percent appreciation in the real against the dollar during April and May. Household goods, which include home appliances, rose 0.09 percent in May, while communications equipment rose 0.15 percent.
The heated economy is attracting foreign investment, helping push the real up 24 percent against the dollar in the past two years, the biggest advance among emerging-market currencies, according to Bloomberg data.
Brazil´s economic expansion gained speed in the first quarter, challenging President Dilma Rousseff’s efforts to cool growth and bring inflation to the 4.5 percent target by next year.
Gross domestic product expanded 1.3 percent in the first quarter from the previous three-month period and 4.2 percent from a year earlier, the national statistics agency said June 3. Growth in the fourth quarter of 2010 from the previous three months was revised to 0.8 percent from 0.7 percent.
Signs of Slowing
Unemployment fell in April to the lowest level on record for the month.
Brazil’s economy has shown some signs of slowing since it grew by 7.5 percent last year. Industrial production slumped 2.1 percent in April from March, the biggest contraction since 2008, and consumer confidence fell in May to its lowest level in more than a year. Average real wages fell 1.8 percent in April from March.
Finance Minister Guido Mantega said growth will slow in the second quarter, when measures taken to slow the economy will have their biggest impact. The economy is growing at a more “moderate” pace than it was last year, Mantega said June 3.
Economists surveyed by the central bank held their forecast for 2011 economic growth at 4 percent on June 6, and cut their 2012 growth forecast to 4.1 percent from 4.2 percent a week earlier.
--With assistance from Matthew Bristow in Brasilia. Editors: Harry Maurer, Richard Jarvie
To contact the reporter on this story: Alexander Ragir in Rio de Janeiro at firstname.lastname@example.org
To contact the editor responsible for this story: Joshua Goodman at email@example.com