Brazil Unemployment Rate Falls to 6.9% in July, Second-Lowest on Record

Brazil’s unemployment rate unexpectedly fell to its second-lowest reading on record in July, as Latin America´s biggest economy continues to expand.

Unemployment fell to 6.9 percent last month from 7 percent in June, the national statistics office said today in Rio de Janeiro. July’s figure was less than the median estimate of 7 percent among 31 economists surveyed by Bloomberg.

While Brazil’s economy is running at close to full capacity, the current pace of expansion isn’t threatening to spark inflation, said Roberto Padovani, chief economist at Banco WestLB do Brasil SA. Consumer price increases eased this month, pushing the inflation rate below the government’s target.

“Domestic demand continues to grow, though low inflation and slowing world growth mean the central bank is likely to keep the interest rate unchanged at its next meeting,” said Silvio Campos Neto, chief economist at Banco Schahin SA. “The signals are in line with the bank holding the Selic rate.”

The yield on the interest rate future contract maturing in January 2012, the most traded today on Sao Paulo’s BM&F Exchange, rose 1 basis point to 11.26 percent at 8:56 a.m. New York time. The real strengthened 0.3 percent to 1.7591 per U.S. dollar.

Rate Outlook

Analysts expect the central bank to hold its benchmark interest rate at 10.75 percent for the rest of the year, according to a central bank survey of about 100 economists published this week. Interest rate forecasts for the end of 2010 have fallen continually since early July, as the economy showed signs of cooling from its 9 percent annual growth rate in the first quarter, the fastest pace in 15 years.

Policy makers lifted the Selic rate in the previous three meetings from a record low of 8.75 percent.

The country’s natural rate of unemployment -- the level below which inflationary pressures start to build -- is 7 percent to 7.5 percent, Padovani said. The jobless rate has tumbled from 9 percent in March 2009, its peak during the financial crisis.

“The labor market is heated, the economy is heated, but there are no exaggerations,” Padovani said.

The unemployment level in July was the second-lowest on record after falling to 6.8 percent in December, amid seasonal hiring.

Brazil’s consumer prices unexpectedly fell in the month through mid-August, pushing the annual inflation rate below the government’s 4.5 percent target for the first time since January.

Brazil’s central bank President Henrique Meirelles said Aug. 18 that growth will heat up again in the third quarter.

“There will be a recovery -- the question is to what level of activity and inflation,” Meirelles said in an interview with GloboNews TV network. “The central bank cannot signal what it doesn’t know.”

To contact the reporter on this story: Matthew Bristow in Brasilia at mbristow5@bloomberg.net; Andre Soliani in Brasilia at asoliani@bloomberg.net

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