Brazil Inflation Spikes in June as Bean Prices Surge

  • Annual IGP-M inflation reaches fastest pace in nearly 8 years
  • Grains prices will keep rising in coming months, says analyst

Brazil’s broadest measure of inflation accelerated more than all economists estimated in June, further dimming prospects for a rate cut, following a spike in the price of beans and other food products.

Wholesale, consumer and construction prices as measured by the IGP-M index rose 1.69 percent in June after a 0.82 percent advance in May, according to data from the Getulio Vargas Foundation, an education and research institution. That was above all estimates from 27 economists surveyed by Bloomberg, whose median forecast was for a 1.48 percent increase. 

The index, which is weighted 60 percent in wholesale prices, rose 12.2 percent in the past 12 months -- the most in nearly eight years. Traders further pared bets on interest rate cuts this year as a result. Short-term swap rates rose for a second consecutive day, with the contract maturing in January 2017 up 3 basis points to 13.87 percent at 13:06 local time.

While consumer inflation as measured by the IGP-M index slowed to 0.33 percent, producer prices more than doubled to 2.21 percent due to more expensive grains and raw food products. Inflation for intermediate goods nearly quadrupled, to 1.48 percent.

Beans, a staple of Brazilian cuisine, soared as much as 66 percent in price from the previous year and should continue to fuel inflation in the next few months even after Acting President Michel Temer suspended import tariffs on the grain, said Marcelo Luders, president of the Brazilian Bean Institute, an industry lobby.

The cost of corn and soybeans may rise more modestly in coming months as a stronger currency favors imports and a weaker dollar affects global commodity prices, but record-low domestic stockpiles will prevent prices from dropping, said Fabio Silveira, director at Macrosector consultancy. Corn-fed poultry may also become more expensive soon, he warned.

The Brazilian real traded at an 11-month high of 3.23 per dollar on Wednesday, with gains of nearly 22 percent so far this year.

An unfavorable climate that is hurting global food production was among the concerns cited by the central bank in its quarterly inflation report, in which the monetary authority said there was no room to cut the benchmark Selic rate. The bank currently targets inflation as measured by the IPCA index of 4.5 percent, plus or minus two percentage points. Although it has slowed as of late, the cost of living remains more than double that rate.

Latin America’s largest economy has been stifled by the highest borrowing costs in nearly a decade while unemployment stays in the double digits. Brazil’s jobless rate remained at 11.2 percent in the three months ending in May, unchanged from the previous period, according to a separate report from the national statistics institute released on Wednesday. That is the highest level recorded since the series began in 2012.

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