Brazil June Consumer Prices Rise Less Than Analysts Forecast

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Brazil’s consumer prices in June climbed less than analysts expected, as the central bank continues to raise interest rates in the face of a looming recession. Swap rates fell.

Monthly inflation as measured by the benchmark IPCA index accelerated to 0.79 percent from 0.74 percent in May, the national statistics agency said Wednesday in Rio de Janeiro. That was slower than the median 0.82 percent estimate from 42 economists surveyed by Bloomberg. Inflation in the 12 months through June quickened to 8.89 percent from 8.47 percent a month earlier.

Inflation at its fastest in more than a decade is crimping purchasing power in Latin America’s largest economy and weighing on consumer confidence. The central bank is working to rein in price increases with six straight interest rate increases. Still, economists aren’t convinced inflation will slow to target by 2016, as the central bank has pledged.

“It’s an acceleration on the margin, but you can see some positive data here,” Leonardo Costa, an economist at Rosenberg Consultores Associados, said by phone from Sao Paulo. Food prices “haven’t yet entered as benign a cycle as in past years, but we’re already seeing a deceleration, and that could help slow freely determined prices through year-end.”

Swap rates on the contract due January 2017 fell 11 basis points, or 0.11 percentage point, to 13.61 percent at 9:52 a.m. local time. The real weakened 0.7 percent to 3.2073 per U.S. dollar.

Food and beverage prices in June rose 0.63 percent, after a 1.37 percent rise in May, the statistics agency said in its report. Housing prices climbed 0.86 percent, after a 1.22 percent increase the month before.

Benchmark Selic

The central bank raised the benchmark Selic by a half point at its last policy meeting, to 13.75 percent. Bank directors will hold their next monetary policy meeting on July 28 and 29.

“Today’s number pretty much sealed the deal for another 50 basis-point hike in the Selic later this month,” according to Edward Glossop, emerging market economist at Capital Economics. “The bigger picture is they’re probably not going to be in much of a rush to cut interest rates like they did in 2012 for fear of losing credibility.”

The inflation outlook for 2016 would need to fall below the 4.5 percent target and remain at that level for the following years to create conditions for monetary easing, a member of the government’s economic team with knowledge of monetary policy said July 1.

Economists surveyed by the bank July 3 reduced their year-end 2016 inflation forecast for the first time in seven weeks, to 5.45 percent. They also raised their end-2015 outlook for inflation to 9.04 percent, forecasting that the Selic will reach 14.5 percent.

Accelerating inflation has hit consumer confidence, which fell in June, remaining just above a record low, according to the Getulio Vargas Foundation.

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