Bloomberg News

Brazil Inflation Rate Falls for the First Time in 14 Months

October 20, 2011

(Updates with analyst comment in third paragraph.)

Oct. 20 (Bloomberg) -- Brazil’s inflation rate fell in mid- October for the first time in 14 months, cementing expectations that the central bank will continue to cut interest rates.

Consumer prices, as measured by the IPCA-15 index, rose 7.12 percent in mid-October from a year earlier, the national statistics agency said today, down from 7.33 percent the previous month. Prices rose 0.42 percent in the month through mid-October, less than the 0.45 percent median estimate of 45 analysts surveyed by Bloomberg.

“This goes in line with what the central bank had been saying, that they are going to see the annual number start to fall to levels closer to the center of the target,” said Newton Rosa, chief economist at SulAmerica Investimentos in Sao Paulo. “As long as the international economy remains weak, and continues to be deflationary, they are going to continue to cut interest rates.”

The central bank yesterday cut its benchmark Selic rate to 11.5 percent from 12 percent, saying this would protect Brazil from a more “restrictive” global economy without compromising the inflation target. Traders are betting the bank will reduce borrowing costs an additional 1.25 percentage points by April, according to Bloomberg estimates based on interest rate futures.

The yields on the interest-rate futures contract due in January 2013 rose seven basis points, or 0.07 percentage point, to 10.51 percent at 7.45 a.m. New York time. The real strengthened 0.5 percent to 1.7661 per U.S. dollar.

Food and Drink

The fall in the monthly rate was mainly caused by slower increases in food, drink and clothing prices, the statistics agency said in its report. Food and beverage prices rose 0.52 percent, compared with 0.72 percent a month earlier, while clothing price increases slowed to 0.38 percent from 1 percent.

Even as annual inflation starts to fall, economists still expect Brazil to miss its target of 4.5 percent, plus or minus two percentage points, this year for the first time since 2003, according to an Oct. 14 central bank survey.

Central bank President Alexandre Tombini has repeatedly pledged to slow inflation to 4.5 percent by the end of 2012. Economists surveyed by the central bank don’t expect price increases to slow to the midpoint of the target range until 2014.

Inflation expectations for 2012 and 2013 have jumped since policy makers began cutting interest rates on Aug. 31. Economists in the central bank’s weekly surveys now forecast consumer prices will rise 5.61 percent next year and 4.9 percent in 2013, up from forecasts of 5.2 percent and 4.5 percent at the end of August.

--Editors: Harry Maurer, James Attwood, Philip Sanders

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

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


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