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Brazil’s consumer prices in October rose at the fastest yearly pace since February, as a food supply shock continues to ripple through the largest emerging market after China.
Prices as measured by the IPCA index rose 5.45 percent in the 12 months through October, the national statistics agency said today in Rio de Janeiro. The median estimate from 37 analysts surveyed by Bloomberg was for a 5.44 percent increase. Monthly inflation quickened to 0.59 percent from 0.57 percent in September. Prices for food and beverages rose 1.36 percent in October, the fastest monthly pace since November 2010.
“We’re at the end of the supply shock curve when you talk about consumer prices,” Andre Perfeito, chief economist at Gradual Investimentos, said by phone from Sao Paulo. “It seems to have reached the peak right now in October, perhaps November, but it’s quite clear that it won’t be a problem anymore.”
President Dilma Rousseff’s administration has extended tax cuts for consumer and industrial goods, cut bank reserve requirements to boost lending and pressured banks to reduce spreads in order to spur demand. The central bank has cut its benchmark lending rate since August 2011 by 525 basis points, the most among the Group of 20 nations, to a record 7.25 percent.
Recent indicators show the stimulus measures haven’t gained traction in all sectors of the economy. Brazil’s industrial output in September fell 1 percent from August, the first decline in four months. Consumer default rates in September remained at the highest level since November 2009, as indebted consumers struggle to keep up with payments.
The central bank will continue to pursue its inflation target and focus on price stability, Carlos Hamilton, the bank’s head of economic policy, said on Oct. 31. The pace of price increases is unlikely to converge to target until the third quarter of 2013 due to a spike in food prices, he said in September. The bank targets inflation of 4.5 percent plus or minus two percentage points.
A majority of the central bank’s monetary policy committee members voted in October to cut the benchmark Selic rate. Those voting in favor argued that uncertainty remained regarding the economy’s recovery due to global economic fragility and its local disinflationary effect, and that price pressures were the result of short-term supply shocks, according to minutes from the meeting.
“Apparently for the moment we have changed from an inflation target regime to an economic activity target regime,” Jankiel Santos, chief economist at Banco Espirito Santo Investment Bank, said by phone from Sao Paulo on Nov. 6. “We don’t believe that is wrong, but you should at least warn people that your focus has changed, and it has not been the case in terms of the central bank.”
Economists cut their 2012 inflation forecasts for the first time since July, to 5.44 percent, according to the median estimate in the latest central bank survey of about 100 analysts. The economists maintained their forecasts of 1.54 percent gross domestic product growth this year and 4 percent expansion in 2013.
Swap rates on the contract maturing in January 2015 fell three basis points, or 0.03 percentage point, to 7.81 percent at 10:09 a.m. local time. The real was little changed at 2.0325 per U.S. dollar.
Higher food prices in October were led by manioc flour and rice, which increased 18.2 percent and 9.9 percent, respectively.
Prices in October as measured by the IGP-DI index, which is 60 percent weighted to the wholesale sector, fell 0.3 percent over September, the Getulio Vargas Foundation said today. Producer prices fell 0.7 percent, led by a 1.9 percent drop in raw materials and 1.3 percent fall in agricultural production.
“That figure suggests inflation relief is on the way,” Luciano Rostagno, chief strategist at Banco WestLB do Brasil SA, said by telephone from Sao Paulo. “That could bring help for interest rates not to increase in 2013.”
Decreases in agricultural and raw materials prices will not carry through to consumer food prices until mid-November or December, Pedro Tuesta, senior Latin America economist at 4Cast Inc., said by phone from Washington.
October registered a 1.1 percent increase in apparel, according to the IPCA index. The acceleration was due to a seasonal move associated with new clothing lines hitting stores before Brazil’s summer, Roberto Padovani, the chief economist at Votorantim Ctvm Ltda., said.
Rousseff in September announced new electricity concession rules that will lower revenue and the power rates charged as part of a package that aims to cut electricity costs by as much as 28 percent. This should have a disinflationary effect of some 60 basis points next year, 4Cast’s Tuesta said.
The country’s near-record low unemployment level has helped to boost wages that continue to put inflationary pressure on the services sector, Espirito Santo (BES)’s Santos said. Services inflation accelerated 0.6 percent in October.
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