Brazil’s Consumer Prices Climb More Than Forecast in July

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Brazil’s consumer prices in July climbed more than analysts expected, as the central bank signaled it will hold rates steady in the face of a looming recession.

Monthly inflation as measured by the benchmark IPCA index slowed to 0.62 percent from 0.79 percent in June, the national statistics agency said Friday in Rio de Janeiro. That was faster than the median 0.6 percent estimate from 40 economists surveyed by Bloomberg. Inflation in the 12 months through July quickened to 9.56 percent from 8.89 percent a month earlier.

Inflation at more than double the targeted rate is weighing on confidence as consumers watch their purchasing power crumble, and the real at a 12-year low will further push up prices of imports. Having raised interest rates to their highest in nine years, the central bank indicates monetary policy is tight enough to slow inflation to target next year. Economists surveyed by the bank aren’t so optimistic.

“We’re seeing some disinflation coming from the lagged effect of interest rate hikes, but there’s a lot the central bank has to tackle yet,” Jankiel Santos, chief economist at investment bank BESI Brasil, said by phone from Sao Paulo. “That’s why inflation expectations for the coming years, especially 2016, remain above the target.”

Swap rates on the contract due January 2017 rose 1 basis point, or 0.01 percentage point, to 14.21 percent at 11:36 a.m. local time. The real gained 0.7 percent to 3.5108 per U.S. dollar. It has dropped 35 percent in the past year, the most among 16 major currencies tracked by Bloomberg.

Food and beverage prices in July rose 0.65 percent, after a 0.63 percent rise in June, the statistics agency said in its report. Housing prices jumped 1.52 percent, which included a 4.17 percent increase in electricity costs.

Consumer Confidence

Accelerating inflation has helped drive consumer confidence as measured by the Getulio Vargas Foundation to a record low, along with rising unemployment and the highest interest rates in nine years.

Those factors have also weighed on the approval rating of President Dilma Rousseff’s government, which fell in August to 8 percent -- the lowest for any administration on record, according to pollster Datafolha. The poll of 3,358 people was conducted Aug. 4-5 and has a margin of error of plus or minus two percentage points.

The central bank raised the benchmark Selic rate by a half point at its July 28-29 policy meeting, to 14.25 percent, marking the seventh straight increase. The central bank signaled that keeping the rate at that level will slow inflation to target by the end of next year.

Stronger Scenario

The central bank “considers that the scenario for inflation to converge toward 4.5 percent at the end of 2016 has strengthened,” policy makers said Thursday in the minutes to their meeting. “The committee considers that holding that interest rate level for a sufficiently prolonged period is necessary for the convergence of inflation toward the target at the end of 2016.”

Economists surveyed by the bank July 31 disagree: They haven’t moved their year-end 2016 forecast since mid-July, and foresee 5.4 percent inflation.

“Today’s release does not change our monetary policy view that the Copom ended the tightening cycle,” Bruno Rovai, Brazil economist at Barclays Plc, wrote in a note, referring to the policy committee. “The marginally higher inflation print should not change in a meaningful way the balance of risks for the Copom, whereas the currency performance is the major risk for monetary policy, as of now.”

(A previous version of this story was corrected to say 12-month inflation through July in second paragraph.)

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