Bloomberg News

Brazil Economists Cut 2011 and 2012 Inflation Forecasts

October 24, 2011

(Updates with analyst comment in fourth paragraph.)

Oct. 24 (Bloomberg) -- Economists covering Brazil cut their 2012 inflation forecast for the first time in eight weeks, cementing expectations that the central bank will continue to cut interest rates.

Consumer prices will rise 5.6 percent next year, according to the median forecast in an Oct. 21 central bank survey of about 100 economists published today, compared with a forecast of 5.61 percent the previous week. Analyst also dropped their forecast that Brazil will miss its inflation target this year for the first time since 2003. Prices, as measured by the IPCA index, will gain 6.5 percent this year, from the week-earlier forecast of 6.52 percent, the survey showed.

The improved outlook for inflation, slowing growth and the global crisis are all supporting the central bank’s plans to cut borrowing costs, said Enestor Dos Santos, senior Brazil economist for BBVA in Madrid. The central bank said last week it will carry out “moderate” rate cuts to ensure inflation comes back to target next year. The bank targets inflation of 4.5 percent, plus or minus two percentage points.

“Indicators are showing a sharper moderation than people were expecting,” Dos Santos said in a telephone interview. “The overall environment is going to be more supportive for the central bank.”

The bank last week 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. Economists expect policy makers to lower borrowing costs by half a point at their November policy meeting, and to 10.5 percent by the end of 2012, the survey found, unchanged from the previous week’s forecasts.

Growth Outlook

Dos Santos forecast policy makers will cut the Selic rate to 11 percent at its November policy meeting, and to 10 percent by the end of 2012.

Latin America’s biggest economy is expected to grow 3.3 percent this year, down from a forecast of 3.42 percent the previous week, the survey showed. Analysts also cut their 2012 growth forecast to 3.51 percent from 3.6 percent.

Annual inflation slowed in mid-October for the first time in 14 months. Consumer prices, as measured by the IPCA-15 index, climbed 7.12 percent in mid-October from a year earlier, compared with 7.33 percent the previous month.

The economic activity index, a proxy for gross domestic product, contracted 0.53 percent in August from the month before, its biggest monthly drop since the global financial crisis of 2008. August retail sales fell the most since March 2009, while industrial production registered its third decline in five months.

The yield on the interest rate futures contract maturing in January 2013, the most traded in Sao Paulo today, fell three basis points, or 0.03 percentage point, to 10.45 percent at 7:41 a.m. New York time. The real was virtually unchanged at 1.7749 per dollar.

--Editors: Philip Sanders, Harry Maurer

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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