Brazil’s Broadest Inflation Measure Exceeds All Estimates

Brazil’s broadest measure of inflation (BZPIIPCY) rose in March more than economists estimated as drought pushed up food prices.

Wholesale, consumer and construction prices, as measured by the IGP-M index, rose 1.67 percent this month, more than the 0.38 percent increase in February, the Getulio Vargas Foundation said on its website today. The gain was the biggest since July 2008 and was higher than every forecast from 31 analysts surveyed by Bloomberg, whose median estimate was for a 1.53 jump. The index, which is weighted 60 percent in wholesale prices, rose 7.3 percent in the past 12 months.

Policy makers estimate consumer price increases will accelerate this year even after they raised their key rate more than all nations except Turkey. Near record-low unemployment and a weaker currency are pressuring consumer prices while the worst drought in decades threatens crops. That increases 2014 inflation expectations, which makes it unlikely the central bank can pause in raising rates after April, according to Pedro Tuesta, senior economist for Latin America at 4cast Ltd.

“You have another surge in inflation and that’s a problem,” Tuesta said in a phone interview from Washington. “The central bank will probably have to hike more than they were expecting.”

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Swap rates on the contract due in January 2015, the most traded in Sao Paulo today, rose one basis point to 11.15 percent at 9:09 a.m. local time. The real weakened 0.2 percent to 2.2635 per U.S. dollar.

Corn, Soy

Wholesale prices rose 2.2 percent in March after decreasing 0.43 percent last month, according to today’s report. Wholesale soy prices jumped 4.1 percent, while corn was up 10.95 percent. Consumer prices climbed 0.82 percent, compared with 0.7 percent in February. Food increased 1.55 percent.

This is the first monthly reading of the IGP index in which the drought’s effect is reflected in consumer prices, and there is no sign yet of improvement, Leonardo Costa, an economist at Rosenberg & Associates Inc. in Sao Paulo, said by phone.

Inflation ended 2013 at 5.91 percent, exceeding the central bank’s 4.5 percent target for the fourth straight year. The central bank, which has raised its key rate from a record-low 7.25 percent to 10.75 percent, estimates inflation will accelerate to 6.2 percent in 2014 even with another quarter-point rate increase, according to its quarterly report released yesterday.

Policy makers are working to slow consumer price increases to target and must remain “especially vigilant,” central bank President Alexandre Tombini, told a Senate hearing on March 18. The biggest impact from boosting the key Selic rate has yet to materialize, while a jump in fresh food prices may be temporary, he said.

Economists in the latest weekly central bank survey forecast inflation of 6.28 percent this year. They estimate the Selic will reach 11.25 percent by year-end and the real 2.49 per U.S. dollar. The currency, which weakened 13 percent last year, closed at 2.2589 per dollar yesterday.

Brazil’s unemployment rate was 5.1 percent in February, the lowest ever for the month in the historical series, the national statistics agency reported yesterday.

To contact the reporter on this story: David Biller in Rio de Janeiro at

To contact the editors responsible for this story: Andre Soliani at Harry Maurer

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