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Brazil Economists See Faster Inflation in 2010, 2011

Brazil’s consumer prices will rise this year and next more than analysts previously expected, according to a central bank survey, adding to pressure for policy makers to resume interest rate increases early next year.

Inflation will quicken to 4.98 percent in 2011, up from a week-earlier forecast of 4.92 percent, according to the median forecast in an Oct. 8 central bank survey of about 100 economists published today. For 2010, prices will rise 5.15 percent by year-end, compared with a week earlier forecast of 5.07 percent, the survey shows.

Analysts expect the central bank to resume interest rate increases in April as domestic demand stokes inflation. Policy makers held the benchmark rate unchanged at 10.75 percent at their Aug. 31-Sept. 1 meeting, after raising it 200 basis points this year from a record low 8.75 percent.

“The probability of rate increases next year is higher,” Zeina Latif, a senior economist for Latin America at RBS Securities Inc. in Sao Paulo, said. “There is no outlook for commodity prices to ease, and we are going through a complicated seasonal period where domestic inflation quickens, especially because of higher food prices.”

Yields on interest rate futures contracts maturing in January 2012, the most traded in Sao Paulo, fell one basis point, or 0.01 percentage points, to 11.42 percent at 9:12 a.m. New York time. The real gained 0.1 percent to 1.6644 per dollar from 1.6661 on Oct. 8.

Fastest Pace

Inflation quickened to the fastest pace in five months in September as food prices pushed the annual rate above the government’s target.

Consumer prices as measured by the benchmark IPCA index rose 0.45 percent in September from August, the government’s statistics agency said. Prices rose 4.70 percent from a year earlier. The readings were in line with the median estimates of economists surveyed by Bloomberg.

Policy makers forecast inflation will slow to 4.6 percent next year should the benchmark rate remain unchanged at 10.75 percent, according to a Sept 30 report. The bank targets inflation of 4.5 percent.

“The Monetary Policy Committee believes that a convergence of inflation toward the target’s mid-point is tending to materialize,” the central bank said in their Sept. 30 inflation report. Economic activity is expanding at a pace more “consistent with long-term equilibrium.”

Latif expects policy makers to keep interest rates unchanged next year and said a short-term spike in consumer prices has been accounted for in the central bank’s forecast.

“Faster inflation can be transitional,” Latif said.

Economists kept their 12-month inflation forecast unchanged at 5.16 percent, the central bank survey showed.

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