The jump in Brazilian consumer prices this month was a temporary reversal and won’t jeopardize the government’s 4.5 percent inflation target this year, central bank President Alexandre Tombini said.
Prices as measured by the mid-month IPCA-15 index rose 0.33 in July, exceeding all 42 estimates in a Bloomberg survey of analysts whose median forecast was for a 0.18 percent rise. Consumer prices rose 5.24 percent from a year earlier, the national statistics agency reported July 20.
Brazil’s economy will accelerate in the second half without stoking inflation, Tombini said today. The mid-July consumer price reading was affected by bad weather that pushed up food prices, he said.
“Convergence will take place, this process is not a linear one, it is not a homogeneous one,” Tombini said in a conference call with international reporters. “Between August and December there is a lot of room for the process of convergence to continue and for us to get to our target for 2012.”
The central bank has cut the benchmark Selic rate by 450 basis points since August to a record low 8 percent, as the world’s largest emerging market after China struggles to spur growth and offset the effects of Europe’s debt crisis.
“Tombini signaled that interest rate cuts will continue despite quicker inflation in July,” Andre Perfeito, chief economist at Gradual Investimentos, said in a telephone interview from Sao Paulo.
Swap rates on the contract maturing in January 2014, the most traded in Sao Paulo today, fell six basis points, or 0.06 percentage point, to 7.69 percent at 5:02 p.m. local time. Traders are betting the bank will lower the Selic by as much as 75 basis points by November, according to Bloomberg estimates based on swap rates.
Investors are signaling that could come at the price of higher inflation. The gap between inflation-linked bonds and fixed-rate bonds maturing in 2015, a gauge of bond holders’ inflation expectations, rose five basis points to 5.29 percent at 5:03 p.m. local time from 5.24 percent on July 23.
Tombini today repeated the government’s assessment that growth will quicken to a pace of about 4 percent by year-end as local markets react to monetary stimulus and government tax breaks, reviving growth. Preliminary data from June show a reduction in loan delinquency of more than 90 days, and a sharper reduction in delinquency of 15 to 90 days, thus opening up more room for economic growth, Tombini said at an event in Brasilia.
Tombini said that expanding credit in June and record low levels of unemployment point to a pickup and that he’s “comfortable” with his outlook for stronger growth in the $2.5 trillion economy.
An 8.6 percent slide in the real this year is also helping revive manufacturing, as stockpiles have fallen since the start of the year, he added.
Brazil’s gross domestic product grew 0.8 percent at an annualized rate in the first quarter. The central bank forecasts growth will reach 2.5 percent this year, while economists surveyed by the bank predict expansion of 1.9 percent.
To contact the reporters on this story: Matthew Malinowski in Santiago at firstname.lastname@example.org; Andre Soliani in Brasilia at email@example.com
To contact the editor responsible for this story: Joshua Goodman at firstname.lastname@example.org