Brazil's Economists Raise Their Year-End Inflation Forecast on Food Prices

Rising food prices prompted Brazilian economists to raise their 2010 inflation forecast for a fifth straight week, according to a central bank survey.

Consumer price inflation will quicken to 5.20 percent in 2010, compared with a week-earlier forecast of 5.15 percent, according to the median forecast in an Oct. 15 central bank survey of about 100 economists published today. Consumer prices will rise 4.99 percent in 2011, from a week earlier forecast of 4.98 percent, the survey found.

“It’s a short-term question, mainly due to food prices,” said Solange Srour, chief economist in Rio de Janeiro at BNY Mellon ARX. “Inflation expectations in 2011 are anchored and aren’t on an upward trend.”

Policy makers will wait to see how the global economy fares next year before deciding on their next move, Srour said.

Analysts expect the central bank to resume interest rate increases in April to bring inflation back toward the mid-point of its target range. Policy makers held the benchmark rate unchanged at 10.75 percent at their Aug. 31-Sept. 1 meeting, after raising it 200 basis points this year from a record low 8.75 percent.

Real

Analysts forecast that the real will end the year trading at 1.70 per dollar, from a week-earlier forecast of 1.75, the survey found.

The real weakened 0.3 percent to 1.6697 per dollar at 9:06 a.m. New York time from 1.6651 on Oct. 15. The yield on the interest rate future contract maturing in January 2012 rose three basis points, or 0.03 percentage point, to 11.25 percent.

Brazil’s retail sales rose at a faster-than-expected 2.0 percent in August from a month earlier, fueled by record low unemployment and credit expansion.

The country’s unemployment rate unexpectedly fell to 6.7 percent in August. At the same time, bank lending expanded in August at its fastest pace since July 2009, according to central bank figures.

Policy makers forecast inflation will slow to 4.6 percent next year should the benchmark rate remain unchanged at 10.75 percent, according to a Sept 30 report. The bank targets inflation of 4.5 percent plus or minus two percentage points.

The bank holds its second-last monetary policy meeting of 2010 on Oct. 19-20.

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

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net

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