Bloomberg News

Brazil Analysts Cut 2012 Inflation Forecast for Second Week

November 01, 2011

(Updates with Tombini comment in fifth paragraph.)

Oct. 31 (Bloomberg) -- Brazilian economists continue to cut their forecasts for inflation and growth in 2012, providing support for the central bank as it makes the case for more interest rate cuts. Yields on interest-rate futures fell.

Consumer prices will increase 5.59 percent next year, according to the median forecast in an Oct. 28 central bank survey of about 100 economists published today, down from a forecast of 5.60 percent the previous week. It was the second straight week analysts cut their 2012 inflation forecast.

“I wouldn’t be surprised if in the next few weeks you see a big decline in 2012 inflation forecasts,” said Enestor Dos Santos, senior Brazil economist for BBVA in Madrid. “All the latest indicators show this moderation in activity.”

The central bank cut its benchmark Selic rate to 11.5 percent from 12 percent this month, saying this would protect Brazil from a slowdown in the world economy without stoking inflation. Economists expect policy makers to lower borrowing costs a further half-point next month, and to 10.50 percent by the end of 2012, the survey found.

Central bank President Alexandre Tombini said in Sao Paulo today that the world economy is likely to have a prolonged period of slow growth as it recovers from a debt overhang, and that “moderate adjustments” in interest rates are consistent with inflation converging to its target next year.

The yield on the interest rate futures contract maturing in January 2013, the most traded in Sao Paulo today, fell 5 basis points, or 0.05 percentage point, to 10.29 percent at 12.01 p.m. New York time. The real weakened 1.25 percent to 1.6933 per dollar.

Consumer prices, as measured by the IPCA index, will rise 6.5 percent this year, unchanged from the previous week’s survey.

Analysts cut their 2011 growth forecast for a fourth straight week, to 3.29 percent this year, from 3.3 percent the previous week, the survey found. Analysts also lowered their 2012 growth forecast to 3.5 percent, down from 3.51 percent.

Annual inflation slowed in October for the first time in 14 months. Consumer prices rose 7.12 percent in mid-October from a year earlier, down from 7.33 percent the previous month.

In the minutes to its October policy meeting published last week, the central bank said that inflation peaked in the third quarter, and said it sees “declining risks” from inflation next year. The central bank targets inflation of 4.5 percent, plus or minus two percentage points.

Recent data show the economy slowing, easing inflationary pressures. Unemployment was unchanged at 6 percent in September, defying economists’ expectations it would fall.

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.

--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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