Bloomberg News

Brazil Meets 2011 CPI Target as December Price Rises Slow

January 09, 2012

(Updates with analyst comment in fourth paragraph.)

Jan. 6 (Bloomberg) -- Brazil unexpectedly met its inflation target last year, prompting central bank President Alexandre Tombini to say that price pressures have eased “significantly” in Latin America’s largest economy.

Prices rose 6.50 percent during Tombini’s first year in office, the statistics agency said today in Rio de Janeiro, within the target range of 4.5 percent, plus or minus two percentage points. The figure was lower than the median forecast of 6.56 percent in a Bloomberg survey of 35 economists.

One 100th of a percentage point higher and Tombini would have had to write a letter to the Finance Ministry explaining why he missed the target. Instead, he issued a statement saying recent rate cuts were consistent with a slowdown in inflation. With the economy cooling and world demand damped by the European debt crisis, Tombini has said he can make “moderate” interest rate reductions and still achieve the inflation goal of 4.5 percent this year. Many economists remain skeptical.

“While this result relieved the Brazilian monetary authority from the task of presenting a “mea-culpa” letter to the Finance Ministry, the IPCA outcome should not suffice to ease market participants’ concerns with regard to inflation dynamics in Brazil,” said Jankiel Santos, chief economist at Espirito Santo Investment Bank, in an e-mailed report. “Skepticism on the convergence to the targeted level still abounds.”

Consumer prices rose 0.50 percent in December from November, lower than the 0.55 percent median forecast in a Bloomberg survey. This means that the central bank keeps its record of having met the inflation target every year since 2003.

Global Impact

Traders are wagering Tombini will cut the benchmark Selic rate to as low as 10 percent by May, from 11 percent today, according to Bloomberg forecasts based on interest-rate futures yields.

“The central bank is concerned with the impact of the crisis on the Brazilian economy,” said Newton Rosa, chief economist at SulAmerica Investimentos. “The goal is to preserve growth and jobs even if that means missing the midpoint in 2012.”

Rosa expects consumer prices to increase 5.3 percent this year.

Annual inflation was led by a 7.2 percent rise in food and beverage costs, and an 8.6 percent increase in service prices. Airplane fares leaped 52.9 percent.

Economy Contracts

The yield on the interest rate futures contract maturing in January 2013, the most traded in Sao Paulo today, fell eight basis points, or 0.08 percentage point, to 10.07 percent at 1:02 p.m. in Brasilia. The real weakened 0.5 percent to 1.8525 per dollar.

Latin America’s largest economy shrank in the third quarter for the first time in more than two years, led by an annualized 3.4 percent contraction in industry. Business confidence in the fourth quarter fell to its lowest level since the start of 2009.

Analysts have repeatedly trimmed their growth forecasts in recent months as the economy began to cool and the effects of European financial turmoil spread. Economists cut their estimate for 2012 growth to 3.3 percent in a Dec. 30 central bank survey, from a forecast of 4 percent at the start of August.

Peru missed its inflation goal last year, with a consumer price rise of 4.74 percent exceeding the government’s 1 percent to 3 percent target range.

Colombian prices rose 3.6 percent, within the central bank’s 2 percent to 4 percent range. People’s Bank of China governor Zhou Xiaochuan told Caixin magazine in December that Chinese inflation probably exceeded its 4 percent target in 2011.

--Editors: Harry Maurer, Philip Sanders

To contact the reporters on this story: Matthew Bristow in Brasilia at mbristow5@bloomberg.net; Andre Soliani at asoliani@bloomberg.net.

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


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