Brazil Jobless Rate Falls to Record as Central Bank Warns of Inflation
Brazil’s unemployment rate fell to a record in November as the central bank warned that a tight labor market and robust demand continue to pose “significant” inflation risks. Interest-rate futures yields rose.
The jobless rate in the world’s second largest developing economy declined to 5.2 percent last month, the lowest since records began in 2002, from 5.8 percent in October, a government report today showed. Economists expected the November rate at 5.7 percent, according to the median estimate from 36 analysts surveyed by Bloomberg.
“The central bank doesn’t have much more room to cut interest rates,” Andre Perfeito, chief economist at Gradual Investimentos, said in a phone interview from Sao Paulo. “To try to bring interest rate to single-digits in 2012 would be complicated.”
There is “significant resistance” preventing inflation from slowing in Brazil as current price increases feeds into future inflation, policy makers said today in their quarterly inflation report. They reiterated that “moderate” rate cuts are the adequate strategy to shield the $2.1 trillion economy from the global slump without jeopardizing their 4.5 inflation target.
Traders pared bets that policy makers will cut interest rates much further after three reductions since August to reinvigorate economic growth that stalled in the third quarter. The yield on interest-rate futures contracts due in January 2013, the most traded in Sao Paulo, rose 15 basis-points, or 0.15 percentage point, to 9.98 percent at 3:30 p.m.
More Rate Cuts
While Brazil’s economy shrank in the third quarter for the first time since 2009, Brazil’s low unemployment rate keeps bolstering consumer confidence. The tight labor market, combined with government stimulus efforts and an 18 percent surge in lending this year, are fueling spending even as Europe’s deepening debt crisis reduces demand for Brazil’s exports.
Central bank President Alexandre Tombini last month cut the key interest rate by half a percentage point for a third straight meeting, pushing it to 11 percent even as inflation hovers near a six-year high.
While Tombini pledged to bring inflation back to its 4.5 percent target next year, the central bank’s inflation estimates published today show he misses the goal for at least two more years.
The bank said that inflation would slow to 4.7 percent next year and in 2013, after ending this year at the 6.5 percent upper limit of the bank’s target range, should interest rates remain unchanged at 11 percent.
Analysts are less optimistic. They see inflation exceeding the 6.5 percent upper limit for the first time in eight years in 2011 and falling to only 5.39 percent next year, according to a Dec. 16 central bank survey.
Rate Reversal?
“If necessary, interest rates will go up,” Central Bank’s Economic Policy Director Carlos Hamilton told reporters today in Brasilia.
He said inflation will quicken in 2013, after slowing to target in 2012, as lower interest rates fuel price increases.
President Dilma Rousseff’s administration is trying to reignite growth through interest rate cuts, tax breaks and credit expansion after gross domestic product shrank 0.04 percent in the first quarter, the first contraction since 2009.
For now, the biggest fallout in Brazil from the global slump has been on manufacturers, who saw output decline 2.2 percent in October from a year earlier, and on the nation’s agricultural and commodity exports.
Jobs Growth
In contrast, employers continue to add jobs as Brazil develops the biggest oil finds in the Americas in three decades and the country renovates roads, airports and stadiums to host the 2014 World Cup and 2016 Summer Olympics. Analysts expect foreign direct investment to exceed $60 billion this year and $54 billion in 2012, according to the most-recent bank survey.
Automakers are among companies adding jobs in Brazil as they try to profit from the country’s expanding middle-class.
Nissan Motor Co. is investing 2.6 billion reais ($1.4 billion) to build an assembly plant near Rio de Janeiro that will employ 2,000 workers and open in 2013. Bayerische Motoren Werke AG, the world’s largest maker of luxury vehicles, said this month that it also plans to set up a factory in Brazil to help sustain global sales.
The hiring frenzy has helped boost Rousseff’s approval rating, which stood at 72 percent a year after taking office, according to an Ibope poll published Dec. 16 and commissioned by the National Industry Confederation in Brasilia. Her mentor and predecessor, Luiz Inacio Lula da Silva, enjoyed 66 percent support at the end of his first year in 2003.
“Employment was never so strong,” Luciano Rostagno, chief strategist at Banco WestLB do Brasil, said in a phone interview from Sao Paulo. “We can’t expect rate cuts to accelerate.”
‘Robust’ Demand
The central bank said today that domestic demand remains “robust” because of wage gains and credit expansion. The tight labor market is “a significant but declining risk” for inflation, policy makers said. Economic growth will accelerate to 3.5 percent in 2012 from 3 percent this year, the bank said.
While job growth has shown signs of easing -- employers in November added the fewest number of jobs for the month since 2008 -- the unemployment rate may fall again in December as seasonal hiring continues. In January, the jobless rate usually rises as part-time workers are let go.
To contact the reporters on this story: Andre Soliani in Brasilia at asoliani@bloomberg.net; Raymond Colitt in Brasilia Newsroom at rcolitt@bloomberg.net.
To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net.
Rate this Page