Bloomberg News

Brazil Economists See Faster Inflation for 2012 and 2013

September 12, 2011

(Adds Morgan Stanley forecast in seventh paragraph.)

Sept. 12 (Bloomberg) -- Analysts covering the Brazilian economy raised their 2012 and 2013 inflation forecasts for a second straight week, in the expectation that the central bank will continue to lower interest rates this year.

Consumer prices will rise 5.40 percent next year and 4.80 percent in 2013, according to the median forecast in a Sept. 9 central bank survey of about 100 economists published today. The forecasts were up from 5.32 percent and 4.6 percent respectively the previous week.

Central bank President Alexandre Tombini cut Brazil’s benchmark interest rate a half point to 12 percent on Aug. 31, after raising it at the previous five policy meetings, citing a “substantial deterioration” in the global economy. The central bank will cut borrowing costs a half point at each of its two remaining policy meetings this year, the survey found.

Economists expect the benchmark Selic to end this year at 11 percent, and cut their forecast for the 2012 year end Selic to 11 percent, from 11.88 percent.

“Market economists still have a lot of resistance to buying the central bank’s scenario that the crisis in Europe can bring down commodities prices enough,” said Andre Perfeito, chief economist at Sao Paulo-based Gradual Investimentos. “Domestic demand is much more important for inflation right now than outside factors.”

Rate Cuts

Perfeito expects the central bank to cut borrowing costs a half point at each of its three next policy meetings.

In a report published today, Morgan Stanley cut its interest rate forecast. The banks expects the Selic to fall to 11 percent this year, and 10.5 percent in 2012, from a previous forecast of 12.5 percent this year and next. The central bank may now be pursuing a “dual mandate” targeting growth as well as consumer prices, the report said. Morgan Stanley also raised its 2012 inflation forecast to 5.9 percent, from 5.2 percent.

This year, consumer prices as measured by the IPCA index will rise 6.45 percent, the survey found, from a week-earlier forecast of 6.38 percent.

The yield on the interest rate futures contract maturing in January 2013, the most traded in Sao Paulo today, fell 15 basis points, or 0.15 percentage point, to 10.560 percent at 12:11 p.m. New York time. The real weakened 1.4 percent to 1.6970 per dollar.

The economists cut their estimate for this year’s economic growth for a sixth straight week, to 3.56 percent from 3.67 percent a week earlier. The economists also cut their 2012 growth forecast to 3.80 percent, from 3.84 percent.

The central bank will cut its own 2011 growth forecast from its current 4 percent, as a slowdown in developed nations hits Brazil, Tombini said in a television interview last week. Tombini did not say what the new target will be.

Slower Growth

“Our vision of the world economy, hit with a quarter of the force it was during the 2008 crisis but for a longer period of time, means slower growth,” Tombini said. “We’re not talking about a global recession, we are talking about a deceleration in the world economy with ramifications for the Brazilian economy and for inflation.”

World stock markets lost $5 trillion between the central bank’s July and August policy meetings, as Europe grappled with a sovereign debt crisis and growth in the U.S. showed signs of slowing.

Consumer prices rose 7.23 percent in the year through August, exceeding the 6.5 percent upper limit of the bank’s target range for a fifth straight month. The bank targets inflation of 4.5 percent, plus or minus two percentage points.

--Editor: Joshua Goodman

To contact the reporter on this story: Matthew Bristow in Brasilia at mbristow5@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net


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