Brazil Inflation Boosted by Farm Price Shock, Hamilton Says

Brazil’s inflation was quickened by a temporary shock from agriculture price increases and will slow later this year, said Carlos Hamilton, the central bank’s director for economic policy.

Consumer prices rose faster than analysts expected in the month through mid-July, as adverse weather conditions in Brazil and abroad pushed up food prices 0.88 percent from the previous month. Brazil’s inflation will converge to the central bank’s target during the second half of the year as the climatic effects pass, Hamilton said to reporters in Salvador.

“The shock to supply originated in climatic changes,” Hamilton told reporters in Salvador while commenting on the central’s bank’s quarterly regional report, released today. “We have to wait to see its duration and intensity. Supply shocks are understood to be temporary.”

The bank, which has cut the benchmark rate by 450 basis points in the past year to a record 8 percent, targets inflation of 4.5 percent plus or minus two percentage points. Prices in the month through mid-July rose 5.24 percent from the year before.

Demand for consumer credit is strong, while the offer remains slightly restrictive, Hamilton said. Credit in Brazil is growing moderately, and the outlook for concession of credit is improving, he added.

Credit Growth

Brazil’s central bank expects credit growth of 15 percent this year. Household debt costs will fall gradually and loan default rates will continue to improve, Hamilton said.

During the first five months of the year, the recovery in domestic economic activity has been gradual, the report said. Low employment and real wage increases will help drive gross domestic product growth to a 4 percent annual rate by year-end, central bank President Alexandre Tombini told reporters in late July.

Swap rates on the contract maturing due in January 2014, the most traded today in Sao Paulo, rose eight basis points, or 0.08 percentage points, to 7.80 percent at 1:35 p.m. local time. The real strengthened 1.2 percent to 2.0255 per dollar.

Brazil’s gross domestic product grew at a 0.8 percent annualized rate in the first quarter. The central bank forecasts growth of 2.5 percent this year, down from 2.7 percent last year and 7.5 percent in 2010.

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