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Brazil Economists Increase Forecast for 2012 Inflation to Record of 5.28%

Economists covering the Brazilian economy raised their 2012 inflation forecast to its highest ever for that year, after the central bank last week signaled it may soon halt the cycle of interest rate increases that began in January.

Consumer prices will rise 5.28 percent next year, according to the median forecast in a July 22 central bank survey of economists published today. The figure was up from 5.20 percent the previous week and from 4.5 percent in January.

“This is basically saying that the central bank won’t do enough,” Pedro Tuesta, a Washington-based economist covering Latin America for 4Cast Inc., said in a telephone interview. “They don’t want to harm growth, so they are going to take a long time to bring inflation to the center of the target.”

The central bank raised its benchmark lending rate for a fifth straight meeting last week, after inflation accelerated to a six-year high in mid-July. In a statement accompanying the decision, policy makers withdrew a commitment to raise rates for a “sufficiently long” period, leading traders to increase bets that the bank will hold the rate unchanged at 12.50 percent for the rest of year.

The central bank targets inflation of 4.5 percent, plus or minus two percentage points.

Played Down

A government official in President Dilma Rousseff’s economic team played down the worsening of inflation expectations, saying that it was a result of just 11 analysts out of 110 increasing their forecast for consumer price increases next year. Of the analysts surveyed by the central bank, eight cut their 2012 forecast, said the official, who asked not be identified since he is not authorized to speak publicly about the survey.

Economists held their prediction for 2011 inflation unchanged. Prices, as measured by the IPCA index, will rise 6.31 percent this year, the survey found.

Economists raised their forecast for the benchmark interest rate to 12.75 percent next year, from a week earlier forecast of 12.63 percent. In contrast to traders, economists expect the central bank to raise the Selic rate once more this year, by a quarter point at its August policy meeting.

Consumer prices rose 6.75 percent in the year through mid- July. The central bank aims to slow inflation back to the midpoint of its target in 2012.

Economists held their forecasts for economic growth at 3.94 percent this year, and 4.0 percent in 2012.

Brazil’s government seeks a “soft landing” that brings inflation under control without halting economic expansion, Rousseff told Sao Paulo-based Valor Economico newspaper in an interview July 22.

The yield on the interest rate futures contract maturing in January 2013, the most traded in Sao Paulo today, rose two basis points, or 0.02 percentage point, to 12.70 percent at 1:11 p.m. New York time. The real appreciated 0.9 percent to 1.5379 against the U.S. dollar, its strongest level since 1999.

To contact the reporters 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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