Brazil's Broadest Inflation Index Faster Than All Estimates

  • Consumer price increases running at double the target
  • Weakening currency is pushing cost of imports higher

Brazil’s broadest measure of price increases accelerated to the fastest pace in five months as the central bank says it has tightened policy enough to slow inflation toward the target.

Wholesale, consumer and construction prices, as measured by the IGP-M index, rose 0.95 percent this month, the Getulio Vargas Foundation, an education and research institution based in Rio de Janeiro, said on its website. That was more than all forecasts from 29 economists surveyed by Bloomberg, whose median estimate was for a 0.8 percent increase. The index, which is weighted 60 percent in wholesale prices, rose 8.65 percent in the past 12 months.

Inflation in Latin America’s largest economy is running at more than double the official target, as the currency loses value and pushes up the price of imports. The central bank ended its monetary tightening cycle this month, holding interest rates at their highest since 2006. Even so, traders are betting the monetary authority will be forced to tighten further.

Producer prices jumped 1.3 percent in the month after rising 0.2 percent in August, the FGV said on its website. Consumer prices as measured by the index increased 0.32 percent, from 0.24 percent the prior month.

In its quarterly inflation report on Sept. 24, central bank directors said the deepest recession in 25 years will more than offset the impact of the weaker currency on prices, allowing it to hold interest rates even as the inflation outlook deteriorates.

Brazil’s real has lost 35 percent against the U.S. dollar so far this year, the most of 16 major currencies tracked by Bloomberg. The nation’s consumer confidence has likewise plummeted to an all-time low, according to the FGV.

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