Brazil 2013 Inflation Will Slow Toward Target, Tombini Says

Brazil’s inflation will slow toward target next year even as growth accelerates, central bank President Alexandre Tombini said today.

Factors including lower wage increases and government measures will help slow consumer price increases in 2013, Tombini told reporters at a year-end event at central bank headquarters in Brasilia, adding that the global economic scenario will also help contain price increases. Brazil’s economic recovery is firm, even as third quarter growth figures showed a more gradual recovery than policy makers anticipated, he said.

President Dilma Rousseff’s administration has continued efforts to pump stimulus into Brazil’s $2.5 trillion economy while keeping a lid on inflation, which has remained above the central bank’s target for two years. This month, government officials announced measures aimed at luring billions of reais in port investments, as well as tax cuts for the construction industry. In the last 16 months, policy makers have also increased public spending, reduced the benchmark interest rate to a record low and lowered taxes on automobiles and appliances.

“Brazil has all the conditions necessary to see stronger growth from a monetary and financial stability point of view,” Tombini said. “We are seeing slower inflation next year than this year.”

Economist Forecasts

Analysts covering Brazil today reduced growth forecasts while increasing inflation projections for this year and next, as the world’s second-biggest emerging market continues to respond unevenly to government stimulus efforts.

Brazil’s gross domestic product will expand 1 percent this year and 3.4 percent in 2013, according to the median estimate in a central bank survey of about 100 analysts published today before Tombini’s comments. Analysts had forecast 1.03 percent and 3.5 percent respectively the previous week. Inflation will reach 5.60 percent this year and 5.42 percent in 2013, up from the previous estimates of 5.58 percent and 5.40 percent, the survey showed.

“Expansionist monetary and fiscal policies are fueling inflation because they are creating consumption and demand,” Newton Rosa, chief economist at SulAmerica Investimentos, said in a telephone interview from Sao Paulo. “We are still not seeing higher investments. Slower economic growth this year reduces carry-over to next year.”

Falling Investment

Brazil’s GDP grew 0.6 percent in the third quarter, half the pace forecast by economists, as investment fell for the fifth straight period. Sales of vehicles in November slipped 8.7 percent from October.

Recent economic indicators suggest a turnaround may be under way. Brazil’s economic activity index, a proxy for gross domestic product, rebounded more than analysts expected in October. Retail sales in October increased for the fifth straight month and at the fastest pace since July on higher sales of computers, furniture and appliances.

Uneven growth has failed to tame inflation, which has remained above the central bank’s 4.5 percent target for over two years. Annual inflation through November accelerated to 5.53 percent from 5.45 percent a month earlier on higher service costs. Rousseff said in France last week that inflation is under control.

The economy grew 2.7 percent last year, down from 7.5 percent in 2010. Brazil is creating conditions necessary to grow more than 4 percent next year, Finance Minister Guido Mantega said in Paris last week, adding that fourth quarter growth will be stronger than in the prior period.

To contact the reporters on this story: Matthew Malinowski in Brasilia at mmalinowski@bloomberg.net; Andre Soliani in Brasilia at asoliani@bloomberg.net

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

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