Brazil Unemployment Fell to Record Low 5.2%, Limiting Scope for Rate Cuts

Brazil’s unemployment rate fell to its lowest on record in November, showing a resilience in Latin America’s biggest economy that may limit policymakers ability to enact further rate cuts. Interest-rate futures rose.

Unemployment fell to 5.2 percent last month, the agency said today. Economists expected an unemployment rate of 5.7 percent, according to the median estimate from 36 analysts surveyed by Bloomberg.

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 efforts to stimulate growth, are driving demand and inflationary pressures that may limit policy makers’ leeway to keep cutting rates in 2012, said Mauricio Rosal, chief economist at Raymond James in Sao Paulo, in a phone interview before the report was released.

The yield on interest rate future contracts due January 2013 rose 6 basis points, or 00.06 percentage point, to 9.89 percent at 9:06 a.m. Brasilia time. The real rose 0.2 percent to 1.8552 per dollar.

November’s jobs report reflects a surge in seasonal hiring, as retailers add temporary jobs in advance of the Christmas shopping season.

Reinvigorate Growth

President Dilma Rousseff’s government is trying to reinvigorate Brazil’s economy as Europe’s sovereign-debt crisis deepens with a mix of tax cuts, lower borrowing costs and looser bank lending requirements.

Central bank President Alexandre Tombini last month cut the key interest rate for a third straight meeting, pushing it to 11 percent. Rousseff has said Brazil will target growth of 5 percent in 2012, and is ready to use lower borrowing costs to bolster growth.

The government stimulus has already boosted credit markets. Lending rose at its second-fastest pace this year in November, 1.9 percent from the previous month, as banks began charging less for credit following the central bank’s rate reductions.

Even as the economy falters, inflation remains above the 6.5 percent upper limit of the central bank’s target range. A report yesterday showed that consumer prices, as measured by the IPCA-15 index, rose 6.56 percent through mid-December.

Breaching Target

The annual inflation rate will end 2011 above the top of the target range for the first time since 2003, according to a Dec. 16 central bank survey of about 100 economists. Tombini will also fail to meet the bank’s goal of bringing inflation back to the 4.5 percent midpoint of the target range next year, the same survey showed.

Brazil’s gross domestic product shrank 0.04 percent in the third quarter from the previous three months, the first contraction since the first quarter of 2009.

Still, for now, the biggest fallout 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 Brazil has also showed signs of easing. Employers added 42,735 jobs in November, the least for the month since 2008, the Labor Ministry said Dec. 20.

To contact the reporter on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net

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

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