Brazil Mid-July Inflation Slows More Than Analysts Forecast

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Brazil’s inflation in the month through mid-July decelerated more than analysts estimated, as the central bank raises rates and the economy contracts.

Inflation as measured by the benchmark IPCA-15 index slowed to 0.59 percent from 0.99 percent a month earlier, the national statistics agency said on its website today. That was below the median 0.61 percent estimate from 43 analysts surveyed by Bloomberg. Annual inflation sped up to 9.25 percent from 8.8 percent.

The central bank has raised the benchmark Selic rate in the face of a looming recession that’s done little to slow inflation. Depressed consumer sentiment reflects the impact of rising prices, joblessness and interest rates. Even so, at least one bank director has stated he will keep voting for rate increases.

“While inflation in annual terms remains high, in monthly terms the big increases have now happened, especially in housing and transport,” Edward Glossop, emerging market economist at Capital Economics. “The big price increases are now behind us. Some consumer-based prices, like clothing, are quite low.”

Swap rates on the contract due in January 2017 fell seven basis points, or 0.07 percentage point, to 13.26 percent at 9:38 a.m. local time. The real weakened 0.5 percent to 3.1891 per U.S. dollar.

Prices for food and beverages rose 0.64 percent after a 1.21 percent increase the previous month. Transport costs rose 0.14 percent after a 0.85 percent jump in the month through mid-June. Apparel prices fell 0.06 percent, after last month’s 0.68 percent increase.

Feeding Through

The deflation in clothing suggests that weakness in the labor market is feeding through to prices, according to Glossop.

The drop in apparel prices was also responsible for inflation slowing more than forecast, according to Flavio Serrano, senior economist at investment bank BESI Brasil. Core inflation remains high, and the central bank is set to maintain its half-point pace of monetary tightening at its meeting this week, Serrano said.

Boosting the benchmark rate at six straight monetary policy meetings to 13.75 percent hasn’t prevented inflation from accelerating to more than double the 4.5 percent midpoint of the target range. Tony Volpon, one of the central bank’s directors, will continue to vote for monetary tightening until inflation expectations slow to target, he said Monday.

Economists surveyed weekly by the central bank forecast 5.4 percent inflation at the end of next year, down from their prior 5.44 percent median forecast.

“Expectations will continue to fall, especially in 2016, but it’s still very early,” Volpon said in Sao Paulo. “We need to stabilize and consolidate this framework, so we eventually can think of monetary accommodation.”

The bank’s next monetary policy meeting is July 28-29. Economists in the central bank survey forecast a 1.7 contraction of gross domestic product this year.

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