Brazil Economists Forecast 2014 CPI Above Upper Target Ceiling

Brazil economists forecast for the first time that this year’s inflation will exceed the upper limit of the target after a drought pushed food prices higher.

Brazil’s inflation will accelerate to 6.51 percent this year, compared with the previous week’s forecast of 6.47 percent, according to the April 17 central bank survey of about 100 analysts published today.

President Dilma Rousseff’s administration is struggling to tame above-target inflation amid slowing economic growth. An increase in food prices has prompted annual inflation to surge even after policy makers lifted the key rate by 375 basis points in the past year. Higher prices have curbed purchasing power and weighed on sales from retail to industry.

Monthly inflation in mid-April accelerated to 0.78 percent from 0.73 percent the month prior, pushing annual inflation to 6.19 percent, the national statistics agency said on April 17. While the price increase was slower than economists’ estimates, inflation in 12 months reached the fastest pace since mid-July.

Recent data show a food price shock is already easing, central bank President Alexandre Tombini said at an April 16 event in Brasilia. The effects of monetary policy on inflation are cumulative and appear with delay, Tombini said.

The central bank on April 2 raised the Selic by 25 basis points to 11 percent. Prices have not felt the full brunt of 375 basis points in total borrowing cost increases implemented since last year, policy makers said in the minutes to their April 1-2 meeting.

Inflation Target

The central bank targets annual inflation at 4.5 percent, plus or minus two percentage points.

The economy will expand 1.63 percent this year, the central bank survey showed today, down from a forecast of 1.65 percent a week earlier.

Brazil’s economic activity in February slowed more than analysts expected, according to central bank data published April 16. Both retail sales and industrial output that month grew at a slower pace compared to January.

Latin America’s largest economy will expand 2 percent this year, the central bank’s Tombini said on April 16. That would be a slower pace than the Latin America average for a fourth straight year, according to data compiled by Bloomberg.

To contact the reporters on this story: Raymond Colitt in Brasilia Newsroom at rcolitt@bloomberg.net; Matthew Malinowski in Brasilia at mmalinowski@bloomberg.net

To contact the editors responsible for this story: Andre Soliani at asoliani@bloomberg.net Harry Maurer

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