Brazil’s Mid-Month Inflation Slows to Below 6% for First Time Since 2010

Brazilian consumer prices rose less than economists expected through mid-February, taking the mid-month inflation rate below 6 percent for the first time since December 2010. Interest-rate futures yields fell, as traders increased bets on rate cuts.

Prices, as measured by the IPCA-15 index, rose 0.53 percent, down from 0.65 percent a month earlier, and less than the 0.56 percent median estimate from 46 analysts surveyed by Bloomberg. Annual inflation slowed to 5.98 percent.

Today’s number creates additional space for the central bank to cut its benchmark Selic rate, said Solange Srour, chief economist at BNY Mellon ARX Investimentos.

“Today, the chance of the Selic getting to 9 percent is higher than before,” Srour said, speaking by telephone from Rio de Janeiro.

Central bank President Alexandre Tombini has pledged to slow consumer price rises to the 4.5 percent midpoint of the target range this year. The economy’s recent “below potential” growth has opened up space for further interest rate cuts without stoking inflation, Tombini said in Mumbai this month. The central bank targets inflation of 4.5 percent, plus or minus two percentage points.

“This confirms the path of ever lower interest rates,” said Jose Goncalves, chief economist at Banco Fator in Sao Paulo. “This will postpone a possible reversal of the interest rate cuts.”

Unemployment Rate

Brazil’s January unemployment rate fell to 5.5 percent from 6.1 percent a year earlier, the national statistics agency said. The drop was in line with the median estimate from 44 analysts surveyed by Bloomberg. Unemployment was a record low 4.7 percent in December.

The yield on the interest rate futures contract maturing in January 2014, the most traded in Sao Paulo today, fell three basis points, or 0.03 percentage point, to 9.62 percent at 9:48 a.m. Brasilia time.

The inflation slowdown was led by food and beverage costs, which rose 0.29 percent, from 1.25 percent in the month through mid-January. Transportation costs fell 0.05 percent, after rising 0.79 percent the previous month.

Policy makers began a cycle of interest rate cuts in August to help shield Brazil from the effects of the European debt crisis. Traders are betting the central bank will cut borrowing costs by half a percentage point for a fifth straight meeting in March, to 10.00 percent, and to as low as 9.25 percent by August, according to Bloomberg estimates based on interest rate futures.

Growth will pick up speed in the second half of the year and reach an annualized pace of more than 5 percent due to government stimulus measures, Finance Minister Guido Mantega said yesterday. Economists in a Feb. 10 central bank survey forecast the economy to grow 3.3 percent this year and 4.1 percent next year.

To contact the reporters on this story: Matthew Bristow in Brasilia at mbristow5@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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