Brazil’s Consumer Prices Rise at Fastest Pace in Nine Months

Brazilian consumer prices rose at the fastest pace in nine months in January on higher transport, food and drink costs, reinforcing bets the central bank will miss its year-end inflation target as the economy rebounds.

Prices increased 0.56 percent from December, the national statistics agency said in a report distributed in Rio de Janeiro today, in line with the median estimate of 49 economists surveyed by Bloomberg.

While annual inflation slowed to 6.22 percent in January, core prices indicate that inflation will breach the 6.5 percent upper limit of the target range this year, said Solange Srour, chief economist at BNY Mellon ARX Investimentos in Rio de Janeiro. Central bank President Alexandre Tombini said in Mumbai last week that policy makers are working to bring inflation back to 4.5 percent this year, even as the bank’s own forecast shows consumer prices will rise 4.7 percent in 2012.

The January number “shows that the economic slowdown didn’t affect inflation and that there’s strong inertia,” Srour said in a telephone interview. “Meeting the target of 4.5 percent this year will be very difficult. Inflation continues to run high.”

Srour’s calculations show annual core inflation at 6.7 percent in January. The central bank targets price increases of 4.5 percent plus or minus two percentage points.

Futures Contract

The yield on the interest rate futures contract maturing in January 2014 declined four basis points, or 0.04 percentage point, to 9.70 percent at 3:19 p.m. Brasilia time. The real declined 0.5 percent to 1.7257 per dollar.

Traders are betting the central bank will cut its benchmark rate by 0.5 percentage point for a fifth straight meeting in March, to 10 percent, and to 9.25 percent by July, according to Bloomberg estimates based on interest rate futures contracts.

Economists forecast inflation of 5.29 percent this year, according to a Feb. 3 central bank survey, down from 6.5 percent in 2011.

Transport costs rose 0.69 percent in January after stagnating in December. Food and beverage prices showed the largest increase, with a gain of 0.86 percent, compared with a 1.23 percent increase the month earlier.

Recent data show the economy rebounding after it contracted in the third quarter for the first time in more than two years. The central bank’s economic activity index, a proxy for gross domestic product, expanded at its fastest pace in 19 months in November, while unemployment fell to a record low of 4.7 percent in December and industrial production rose at the quickest pace in seven months.

The January inflation number marked the first time the statistics agency used a new methodology that changes the weighting of each category of goods and services in the overall index. Using the old methodology the January rate would have been higher, said Srour.

To contact the reporters on this story: Peter Millard in Rio de Janeiro at pmillard1@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

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