Bloomberg News

Brazil Analysts Cut 2012 Inflation Forecasts as Growth Slows

January 03, 2012

(Updates with analyst comment in fourth paragraph.)

Jan. 2 (Bloomberg) -- Economists covering Brazil cut their forecasts for 2012 inflation for a fifth straight week as growth slows in Latin America’s biggest economy.

Consumer prices will increase 5.32 percent this year, according to the median forecast in a Dec. 30 central bank survey of about 100 economists published today, from a forecast of 5.33 percent the previous week. Consumer prices, as measured by the IPCA index, rose 6.55 percent in 2011, the survey showed, from a forecast of 6.54 percent last week.

Economists expect the central bank to cut interest rates half a percentage point to 10.5 percent at its Jan. 17-18 policy meeting, and to 9.5 percent by the end of the year, the survey found. In November, central bank President Alexandre Tombini cut interest rates for a third straight meeting, to 11 percent, to help protect Brazil from the European debt crisis.

“Economists are seeing that economic activity in 2012 won’t be as great as previously forecast, and that will affect inflation,” said Andre Perfeito, chief economist at Sao Paulo- based Gradual Investimentos. Slow global growth, a weaker jobs market and government spending curbs will help ease inflation to 5.1 percent by the end of the year, Perfeito said.

Economists cut their estimate for economic growth last year to 2.87 percent, from 2.90 percent. Brazil’s economy will expand 3.3 percent this year, from a previous forecast of 3.40 percent, according to the survey.

Economic Contraction

Brazil’s economy contracted in the third quarter for the first time in more than two years, while retail sales stalled in October and industrial output shrank for a third month. The MSCI All Country World Index of equities lost 6.9 percent last year, after accounting for reinvested dividends, as European debt turmoil spread to Spain and Italy.

Annual inflation slowed for a third straight month in mid- December, to 6.56 percent. Brazil targets consumer price rises of 4.5 percent, plus or minus two percentage points. Inflation has exceeded the upper limit of the target range since April.

The yield on the interest rate futures contract maturing in January 2013, the most traded in Sao Paulo today, was unchanged at 10.04 percent at 6:32 a.m. New York time. The real strengthened 0.3 percent to 1.8608 per dollar.

--Editors: Harry Maurer, Philip Sanders

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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