Brazil's Consumer Prices Unchanged in June; Annual Rate Declines to 4.84%

Brazil’s consumer prices were unchanged in June from the previous month as food prices fell more than expected.

The result surprised all 40 economists surveyed by Bloomberg, whose median estimate was for an 0.11 percent increase. Annual inflation as measured by the IPCA index slowed to 4.84 percent in June, the lowest since February, the national statistics agency said.

Last month’s food price deflation will likely give way to a rise this month and next, pushing the IPCA’s year-on-year reading back up further from the central bank’s 4.5 percent target, said Diego Donadio, senior analysts for Latin America at Banco BNP Paribas, who maintains his forecast for a year-end annual inflation rate of 5.2 percent.

“The dynamic is not of continuous or intense deceleration of inflation,” said Donadio in a telephone interview from Sao Paulo. Central bankers are looking ahead to 2011 and are also focused on reports showing Brazilian factories operating near historic highs, he said.

The yield on the interest-rate future contract due in October, the most traded on the Sao Paulo BM&F futures exchange today, fell six basis points to 10.915 percent. The real rose 0.5 percent to 1.7711 per U.S. dollar at 10:23 a.m. New York time.

Overheating

Economists and analysts had raised their forecasts for the country’s benchmark interest rate this month as policy makers try to stop the economy from overheating. Brazil’s gross domestic product expanded 9 percent in the first quarter over the same period a year earlier, its fastest pace in more than two decades.

Manufacturers increased the use of installed capacity to 83 percent in April, the National Industrial Confederation reported last month, a 19-month high and near the record 83.4 percent of December 2007.

The central bank targets inflation of 4.5 percent plus or minus two percentage points. Inflation has remained above the mid-point of the government’s range every month this year.

In a July 2 central bank survey, analysts raised their inflation forecast for the next 12 months to 4.86 percent, up from a week-earlier forecast of 4.82 percent.

Four weeks ago economists in the survey were predicting inflation of 4.72 percent. The survey showed that economists expect a 2011 year-end inflation rate of 4.8 percent.

The monthly IPCA reading was the lowest since June 2006 as food prices fell 0.9 percent from May, the biggest decline in over a decade.

“For July, we expect a reversal of this decline of food prices,” Donadio said.

To contact the reporters on this story: Matthew Bristow in Bogota at mbristow5@bloomberg.net; Joshua Goodman in Rio de Janeiro at jgoodman19@bloomberg.net

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