Bloomberg News

Brazil Sees 25% Chance of Inflation Above Target Ceiling in 2013

March 28, 2013

Brazil’s central bank said inflationary pressures have spread, increasing the probability that price increases will breach the target’s upper range for the first time in a decade.

Policy makers estimate there is a 25 percent chance consumer prices will exceed 6.5 percent this year, even after raising the benchmark interest rate to 8 percent this year from a record low 7.25 percent, according to the quarterly inflation report published today. In December, they saw a 14 percent chance of breeching the inflation ceiling. They forecast the economy will grow 3.1 percent.

President Dilma Rousseff said yesterday that while the government is attentive to inflation, she opposes measures that will undermine economic expansion. Her administration is trying to recover from two years of slowing growth without further stoking inflation that accelerated more than analysts expected in the eight months through February.

Swap rates on the contract due in January 2015 fell one basis point to 8.44 percent at 9:17 a.m. local time. The real strengthened 0.18 percent to 2.0075 per U.S. dollar.

Policy makers, in their quarterly inflation report today, said consumer prices will increase 5.8 percent this year, according to its market scenario, which considers the key rate at 8 percent and the exchange rate at 2 per dollar by year end. In December, the bank said prices would rise 4.9 percent this year.

Policy makers cut the benchmark interest rate to a record in October and have since kept it unchanged. As part of the plan to boost economic growth without stoking inflation, the administration reduced taxes on food and payrolls, and cut energy costs.

Annual inflation accelerated to 6.31 percent in February from 6.15 percent the month prior.

To contact the reporters on this story: Matthew Malinowski in Brasilia at mmalinowski@bloomberg.net; Raymond Colitt in Brasilia Newsroom at rcolitt@bloomberg.net

To contact the editor responsible for this story: Andre Soliani at asoliani@bloomberg.net


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