Brazil 2013 Inflation Forecast Jumps to Highest on Record

Economists covering Brazil increased their 2013 inflation forecast to the highest on record after the central bank reiterated it would continue cutting its benchmark lending rate.

Brazil’s consumer prices will rise 5.11 percent next year, according to the median forecast in a Feb. 24 central bank survey of about 100 economists published today, up from the previous week’s estimate of 5.02.

Policy makers have cut Brazil’s benchmark rate 200 basis points since August to 10.5 percent to protect Latin America’s biggest economy from Europe’s debt crisis and signaled that they will probably lower the rate to a “single digit” in the near future. Central bank President Alexandre Tombini reiterated on Feb. 26 that the bank will continue to lower borrowing costs further.

“Looser monetary policy in the context of stronger economic activity leads to expectations for higher inflation next year,” Newton Rosa, chief economist for Sul America Investimentos, said in a phone interview from Sao Paulo.

Stronger economic growth, particularly in the second half of the year when the effect of lower rates kicks in, “will push prices up, and surveys are already taking that into account,” Rosa said.

The yield on the interest rate future contract maturing in January 2014, the most traded in Sao Paulo today, fell one basis point, or 0.01 percentage point, to 9.76 percent at 9.44 a.m. Brasilia time. The real declined 0.1 percent to 1.7115 per dollar.

Lower Prices

The IGP-M index of wholesale, construction and consumer prices declined 0.06 percent in February from January, its second fall in three months, the Getulio Vargas Foundation said on its website today. The median estimate from 29 analysts surveyed by Bloomberg was for a fall of 0.08 percent. The index had risen 0.25 percent in January.

The monthly decline was led by a 0.95 percent drop in raw materials costs. The IGP-M rose 3.43 percent in the past 12 months, compared with a 4.53 percent jump in January.

Inflation expectations for 2012 remained unchanged at 5.24 percent, according to the central bank survey. The economy is forecast to grow 3.3 percent this year and 4.1 percent next year, the survey showed.

In a separate central bank survey on Feb. 23, economists said Brazil’s 5.5 percent real interest rate, the highest in the Group of 20 nations, is too low for the country to meet its inflation target.

Tombini has repeatedly pledged to slow consumer price inflation to the 4.5 percent midpoint of the bank’s target range by the end of the year.

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