Brazil to Miss Inflation Target Until 2015, Weekly Economist Survey Shows

Economists covering Brazil raised their forecast for 2014 inflation above the 4.5 percent target for the first time, on doubts about the central bank’s commitment to controlling consumer prices.

Consumer prices will increase 4.55 percent in 2014, according to the median forecast in a Nov. 18 central bank survey of about 100 economists published today. Consumer prices rose 6.97 percent in October from a year earlier.

“It looks like no one is really confident that the central bank is focusing on inflation anymore,” said Jankiel Santos, chief economist at Espirito Santo Investment Bank. “It’s much more focused on economic growth than on inflation. As long as inflation doesn’t breach 6.5 percent, it looks like it’s going to be OK for them.”

The central bank began cutting rates in August to protect Brazil from global economic turmoil, even as inflation accelerated to a six-year high. President Dilma Rousseff said this month that Brazil must keep “one eye on inflation and one eye on growth.”

Economists expect policy makers to cut borrowing costs 0.5 percentage point to 11 percent this month, and to 10 percent by the end of 2012, the survey found. The central bank reduced its benchmark Selic rate by a half point last month, saying a slowing world economy will curb inflation.

Shoring Up Growth

The government’s concern with shoring up economic growth means inflation may take longer to slow back to target, said Marcelo Salomon, chief economist for Brazil at Barclays Plc in New York.

“The central bank and the government are willing to have a smoother convergence of inflation to target,” Salomon said.

Central bank President Alexandre Tombini repeated Nov. 16 that Brazil can make “moderate” interest rate cuts and still reach its 2012 inflation goals. Tombini told Veja magazine last week that the central bank has no target other than inflation.

At the same time as 2014 inflation expectations rose, forecasts for 2012 and 2013 fell. Analysts cut their 2012 inflation forecast for the fifth straight week, as Latin America’s largest economy shows signs of slowing. Consumer prices will rise 5.55 percent next year, compared with a forecast of 5.56 percent the previous week, the survey showed. The economists also cut their 2013 inflation forecast to 4.92 percent from 5 percent.

Prices, as measured by the IPCA index, will rise 6.48 percent this year, unchanged from last week’s forecast, the survey found.

Slowing Down

Breakeven rates, the difference between yields on 2015 inflation-linked and fixed rate bonds, show that traders are wagering on average annual inflation of 5.7176 percent over the next four years, down from 6.1974 percent at the end of September.

Brazil’s economy grew at its slowest pace in two years in September, cementing bets the central bank will keep cutting rates to prevent a recession. Economic activity, a proxy for gross domestic product, expanded 1.17 percent in September from a year earlier. The increase was lower than the median forecast of 1.25 percent from 14 analysts surveyed by Bloomberg.

Industrial production contracted 2 percent in September, the second-biggest fall since the decline that followed the collapse of Lehman Brothers Holdings Inc. in 2008. Vehicle sales fell 7.5 percent in October from a year earlier, and third- quarter business confidence was the lowest since the first three months of 2009.

Economists kept their forecast for economic growth this year and next unchanged. Latin America’s biggest economy will expand 3.16 percent in 2011 and 3.5 percent in 2012, the survey found.

Annual inflation slowed in October for the first time in 14 months. The central bank targets inflation of 4.5 percent, plus or minus two percentage points

Tombini said last week that inflation has peaked and will “fall sharply” by the second quarter of 2012.

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

To contact the editor responsible for this story: Harry Maurer at hmaurer@bloomberg.net.

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