Bloomberg News

Brazil Economists See 2011 Inflation Topping Target Range

September 26, 2011

(Updates prices in sixth paragraph.)

Sept. 26 (Bloomberg) -- Brazil’s central bank will miss its inflation target this year for the first time since 2003, a central bank survey of economists shows.

Consumer prices will rise 6.52 percent this year, according to the median forecast in a Sept. 23 central bank survey of about 100 analysts published today, as record low unemployment and a weaker currency fuel consumer price increases.

The forecast was up from 6.46 percent the previous week. The central bank targets inflation of 4.5 percent, plus or minus two percentage points, and year-end inflation has remained within the target range for the past seven years.

“The report shows that the market expects the weaker currency to contribute to inflation, although not enough to change the central bank’s focus,” said Luciano Rostagno, head strategist of CM Capital Markets, in a telephone interview from Sao Paulo. “The central bank has signaled that it will keep promoting a policy of cutting rates.”

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 bank said lower borrowing costs won’t compromise its 4.5 percent inflation target next year. Annual inflation in mid-September was 7.33 percent, the fastest rate in six years.

Falling Yields

Yields on the interest-rate futures contract maturing in January 2013, the most traded in Sao Paulo today, fell 12 basis points, or 0.12 percentage point, to 10.34 percent at 9:38 a.m. New York time. The real weakened 0.5 percent to 1.8436 per dollar from 1.8339 Sept. 23.

The real has fallen 14 percent this month against the dollar as investors shun emerging market assets on concern Europe’s debt crisis will hurt the global economy. A weakening currency could increase the cost of imported consumer goods, Rostagno said.

Economists held estimates for the benchmark Selic at 11 percent for the end of this year and 10.75 percent for year-end 2012, the survey showed.

For the next 12 months consumer prices as measured by the IPCA index will rise 5.76 percent, from a previous estimate of 5.71 percent, according to the survey. The forecast rose for the fifth straight week. Prices will rise 5.52 percent in 2012, the survey showed, up from the previous week’s forecast of 5.50 percent.

The economists reduced their estimate for this year’s economic growth to 3.51 percent from 3.52 percent a week earlier and held their 2012 growth forecast at 3.7 percent.

Brazil’s unemployment rate was unchanged at 6 percent in August, a record low for the month, the national statistics agency said on Sept. 22. Average real wages rose 0.5 percent from the previous months to 1,629.40 reais ($839.16) a month.

--Editors: Harry Maurer, Richard Jarvie

To contact the reporter on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net

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


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