Bloomberg News

Brazilian Consumer Prices Rose at Slowest Pace Since August

June 21, 2011

(Updates to add analyst comment in fourth paragraph.)

June 21 (Bloomberg) -- Brazilian consumer prices rose at their slowest pace this month since August, helped by a decline in gas prices, as growth in Latin America’s biggest economy showed more signs of cooling.

Consumer prices as measured by the IPCA-15 index rose 0.23 percent in the month through mid-June, down from 0.70 percent in last month’s reading, the national statistics agency said today on its website. The increase was more than the 0.17 percent median forecast in a Bloomberg survey of 37 analysts.

A deceleration in price increases in recent months has been insufficient to convince analysts that the central bank will be able to meet its inflation target next year. Policy makers signaled they are ready to raise the benchmark interest rate for a fifth consecutive meeting next month as they try to contain inflation that has remained above the 6.5 percent upper limit of the target range since April.

“Inflation decelerated because of specific issues -- food and fuels. Other items show inflation pressures are still spread,” said Flavio Serrano, senior economist at Espirito Santo Investment Bank in Sao Paulo. “The central bank must remain vigilant and needs to continue to raise rates.”

The yields on interest rate futures due in January 2013, the most-traded in Sao Paulo, rose four basis points, or 0.04 percentage point, to 12.53 percent at 8:53 a.m. New York time. The real strengthened 0.2 percent to 1.5936 per U.S. dollar.

Benchmark Rate

Serrano expects policy makers to raise the benchmark interest rate to 12.5 percent in July, before pausing in August.

Price increases slowed this month as a decline in gas prices lowered transportation costs by 0.73 percent. Food price increases eased to 0.11 percent, compared with 0.54 percent in the mid-May reading.

Central bankers, in deciding to raise the Selic rate to 12.25 percent last month, said they will increase the benchmark rate for a “sufficiently long” period even as the country’s inflation outlook shows signs of improving. Policy makers abandoned in March the goal of hitting their 4.5 percent target this year, saying the costs of bringing inflation back to that level this year were “too high.”

Economists covering Brazil raised their 2012 inflation forecast for a second straight week and now expect prices to increase 5.18 percent next year, according to the median forecast in a June 17 central bank survey of about 100 economists published yesterday. Consumer prices will increase 6.18 percent this year, the same survey shows.

‘Still Skeptical’

“Market players are still skeptical and expect inflation to quicken again in the fourth quarter and first quarter of 2012,” Serrano said.

Annual inflation, as measured by the IPCA-15 index, quickened to 6.55 percent, from 6.51 percent in mid-May, the statistics agency said today. It was the highest reading since July 2005.

Brazil’s prices as measured by the IGP-M index fell 0.21 percent in the May 21 to June 10 period, according to a report today by the Getulio Vargas Foundation. The index, which is 60 percent weighted in wholesale prices, had its first drop for the period since December 2009.

President Dilma Rousseff’s administration is relying on a mix of higher interest rates, measures to curb credit expansion and spending cuts to slow inflation and contain domestic demand. The economy will expand 4 percent this year, down from 7.5 percent in 2010, according to estimates by the central bank.

A drop in commodity prices, prompted by slower global growth, is helping contain inflation in Latin America. Bloomberg’s commodity index, which calculates the mean of indexes including energy, grains, food, precious metals and livestock, has declined 8 percent from the beginning of May.

Chilean policy makers slowed the pace of interest-rate increases this month as growth in South America’s fifth-biggest economy eased and inflation expectations declined.

--With assistance from Dominic Carey in Sao Paulo. Editors: Harry Maurer, Richard Jarvie

To contact the reporters on this story: Andre Soliani in Brasilia at

To contact the editor responsible for this story: Joshua Goodman at

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