Economists Cut 2013 Brazil Inflation Forecast for 2nd Week

Analysts covering Brazil’s economy trimmed their 2013 inflation forecast for the second straight week amid expectations that tax cuts will slow the pace of price increases in the world’s second largest emerging market.

Consumer prices will rise 5.44 percent next year, according to the median estimate in a central bank survey of about 100 analysts published today. Analysts had forecast inflation of 5.48 percent the previous week.

President Dilma Rousseff’s government is working to revive the economy, which analysts forecast will expand this year at the slowest pace among major emerging markets. Since August 2011, policy makers have reduced the benchmark Selic rate 500 basis points to a record 7.5 percent, extended tax cuts for consumers and pressured banks to lower lending costs. Traders are betting on an additional 25 point rate cut this week.

As the stimulus measures have taken effect, inflation has accelerated, spurred by droughts that have driven up the cost of food. Inflation quickened in September for the third straight month, to 5.28 percent. Waning food-price increases and the effects of tax breaks will curb inflation next year, according to Enestor Dos Santos, senior economist for Brazil at Banco Bilbao Vizcaya Argentaria SA. (BBVA)

“If we look toward 2013, the market is reducing its expectations,” he said in a telephone interview from Madrid. “This adjustment is related to electricity tax cuts. Economists are also taking into account the price shocks.”

Industrial Production

Some indicators signal that Brazil’s growth may be picking up. Consumer confidence rose in August for the first time in five months while retail sales in July beat economists’ forecasts and rose at the second-fastest pace since January. Industrial production rose 1.5 percent in August, the third straight monthly increase, as car sales benefiting from the tax cuts soared to a record.

Still, consumer default rates in August remained at the highest level in almost three years, even as average interest rates on loans fell to record lows. Brazil’s trade surplus in September also declined to its lowest level in 18 months amid weaker demand from China and Europe for the country’s exports.

Last month, the central bank cut its 2012 growth forecast to 1.6 percent from 2.5 percent, adding that growth will reach 3.3 percent in next year’s second quarter.

Growth Forecast

In today’s survey economists left unchanged their forecast for gross domestic product to expand 1.57 percent this year and 4 percent in 2013.

Carlos Hamilton, the central bank’s economic policy director, said last month that inflation is unlikely to converge to the bank’s 4.5 percent target until the third quarter of 2013.

In today’s survey, analysts increased their forecast for 2012 inflation for the 13th straight week to 5.42 percent, from 5.36 percent the previous week. Over the next 12 months, inflation will reach 5.50 percent, the economists predicted, down from 5.52 percent in the previous week’s survey.

To contact the reporter on this story: Matthew Malinowski in Santiago at mmalinowski@bloomberg.net.

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

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