Brazil’s Weak Real Pushes Up Wholesale Prices More Than Forecast

Brazilian wholesale prices are rising faster than economists forecast, as a 14 percent slide in the currency over the past six months pushes up the cost of imports and commodities.

Wholesale, consumer and construction prices as measured by the IGP-M index rose 1.02 percent in the last 10 days of August from the same period a month earlier, the Getulio Vargas Foundation said today. The gain was bigger than forecast by all 13 economists surveyed by Bloomberg, whose median estimate was 0.67 percent.

The cost of components for manufacturers, many of which are imported, rose 1.95 percent between Aug. 21 and 31 compared with a 1.31 percent rise in the 10-day period at the end of July. Raw materials, including commodity exports priced in dollars like soy and iron ore, rose 3.3 percent.

“Wholesale inflation shows the weak dollar is affecting prices,” Francisco Carvalho, head of currency trading at BGC Liquidez, said in an interview. “ We now need to find out whether it will pass-through to consumer prices.”

The real gained 0.20 percent to 2.2715 per U.S dollar at 11:08 a.m. local time. Swap rates maturing in January 2015 rose three basis points, or 0.03 percentage point, to 10.32 percent.

The central bank said last week that the recent currency weakness can pressure inflation that has been running above the government’s 4.5 percent target since 2010. Prices jumped 6.09 percent in August from a year ago, according to the benchmark IPCA index.

The IGP-M index is a barometer of the exchange rate’s pass-through effect on inflation because 60 percent of the gauge is weighted in wholesale prices. In the past 12 months, the index has risen 3.9 percent.