Brazilian consumer prices rose less than economists expected in the first half of this month as growth in Latin America’s biggest economy continues to show signs of weakness.
Prices, as measured by the IPCA-15 index, rose 0.51 percent through mid-May, less than was expected by 41 of 45 analysts surveyed by Bloomberg, whose median estimate was for a 0.56 percent increase.
While annual inflation slowed to 5.05 percent in mid-May, the lowest level since October 2010, economists still expect the central bank to miss the 4.5 percent target this year and in 2013 as a drop in the benchmark interest rate spurs economic growth. Stimulus measures, such as tax cuts on vehicles and consumer borrowing announced yesterday, may limit monetary policy stimulus, said Luciano Rostagno, chief strategist at WestLB do Brasil.
“The figure brought some relief but not enough to bring inflation back to target,” Rostagno said by telephone from Sao Paulo. “With yesterday’s measures, the market believes there’s less room for stimulus via monetary policy.”
The yield on the interest rate futures contract maturing in January 2014, the most traded in Sao Paulo today, rose 12 basis points, or 0.12 percentage point, to 8.31 percent at 10:19 a.m. Brasilia time. The real declined 0.43 percent to 2.0507 against the U.S. dollar.
As part of a stimulus package announced yesterday, the central bank will reduce reserve requirements so lenders can boost credit for car purchases. The government also cut taxes on vehicles and will channel more subsidized funding to companies that invest in equipment.
Brazil’s economic expansion faltered in the first quarter even as the government cut borrowing costs to near record lows, reduced taxes on home appliances and boosted subsidized credit.
Tombini reiterated yesterday that inflation would slow in the coming months and that the impact of a weaker currency -- the real has declined 17 percent against the dollar in the past three months -- would have only a “moderate” effect on inflation. Economists are less certain, forecasting that inflation will reach 5.21 percent in 2012 and accelerate to 5.6 percent next year, according a May 18 central bank survey.
While the cost of transport decreased 0.27 percent through mid-May, prices of clothing jumped 0.97 percent, compared with 0.49 percent in the previous month’s report.
On April 18 the central bank cut the Selic rate by 75 basis points to 9 percent in a bid to revive growth. Policy makers have reduced the rate by 350 basis points since August, more than any other Group of 20 nation.
Traders are wagering that the central bank will cut the Selic to a record low 8.5 percent next week, and to at least 8 percent by October, according to Bloomberg estimates based on interest rate futures contracts.
Brazil’s economy grew 2.7 percent last year, its second- weakest performance since 2003. Economists in the latest central bank survey forecast the economy will grow 3.09 percent this year and 4.5 percent next year.
Tombini yesterday said that activity will pick up in the remainder of the year.
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