Brazil’s CPI Surpasses 7% for First Time Since 2005
(Corrects July IPCA-15 figure in second paragraph of story originally published Aug. 19.)
Brazilian inflation accelerated for the 12th consecutive month and exceeded 7 percent for the first time since 2005, undercutting bets that policy makers will reduce interest rates this year.
The inflation rate, as measured by the IPCA-15 index, rose to 7.1 percent in the 12 months through mid-August from 6.75 percent the previous month, the statistics agency said in a report distributed in Rio de Janeiro today. Prices gained 0.27 percent from the previous month, compared with the median forecast of 0.19 percent in a Bloomberg survey of 38 analysts.
“Food surprised with a strong acceleration,” Luciano Rostagno, the chief strategist at CM Capital Markets Ltda. in Sao Paulo, said in a telephone interview. “It shows that service prices are still high and refutes the argument that the central bank will cut rates in August or October.”
Carlos Hamilton, the central bank’s director of economic policy, said today that monthly numbers tend to be volatile and that the bank stands by its forecast that inflation will slow to the 4.5 percent mid-point of its target range next year. Yields on the interest-rate futures contract due in January 2013 rose one point, or 0.01 percentage point, to 12.12 percent as of 12:32 p.m. New York time.
Food prices gained 0.2 percent through mid-August, after a decline of 0.39 percent in the previous month, the statistics agency said. The cost of household goods climbed 0.66 percent.
Inflation Target
“Core inflation indicators have shown a certain moderation, as has full inflation,” Hamilton told reporters in the southern city of Porto Alegre. “We believe that, looking ahead, this is likely to continue, in line with our expectation that inflation will slow to the target next year.”
Hamilton added that Brazil’s jobs market is showing signs of the “expected moderation in activity” and that credit growth will slow to about 15 percent by the end of the year, from 20 percent in the year through June.
Investors are betting that the central bank will cut borrowing costs by 0.5 percentage point this year, and are split on whether they will cut rates this month, according to Bloomberg forecasts based on interest rate futures.
Yields plunged yesterday after central bank President Alexandre Tombini said policy makers will reconsider the global economic outlook amid increased concern that worldwide growth is slowing.
Global Growth
Tombini said on a conference call yesterday that policy makers may “reassess” their earlier view that slower global growth will have a “neutral or ambiguous” effect on Brazilian inflation during their Aug. 30-31 meeting.
“We have a monetary policy meeting at the end of this month, and surely the global environment that has become more challenging recently as well as the economic activity indicators that we have seen in Brazil will all be taken into account when we consider the next steps for monetary policy,” Tombini said in the call with journalists.
Tombini has raised the benchmark interest rate at all five of its policy meetings this year, to 12.5 percent, to try to cool the economy.
Brazil’s economic activity shrank in June for the first time since December, 2008. Job growth in July was lower than all 10 forecasts in a Bloomberg survey of economists. Industrial production fell 1.6 percent in June, the second-biggest drop in output since 2008, and business confidence in the second quarter fell to its lowest level since 2009.
To contact the reporter on this story: Alexander Ragir in Rio De Janeiro at aragir@bloomberg.net; Matthew Bristow in Porto Alegre at mbristow5@bloomberg.net.
To contact the editor responsible for this story: Bill Faries at wfaries@bloomberg.net.
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