Brazil Mid-January Consumer Prices Rise Faster Than Expected

Brazilian consumer prices rose more in the month through Jan. 15 than forecast by any economist surveyed by Bloomberg, increasing doubts that policy makers will be able to keep interest rates at a record low this year. Swap rates rose.

Prices as measured by the IPCA-15 price index gained 0.88 percent, the national statistics agency said on its website today. That was higher than every forecast from 38 economists surveyed by Bloomberg, whose median estimate was 0.82 percent. Annual inflation accelerated for the fourth straight month to 6.02 percent, the fastest pace in a year.

The central bank ended in November the biggest interest rate-cutting cycle among the Group of 20 nations and pledged to keep the benchmark interest rate unchanged for a long period. While inflation is slowing in Mexico and Chile, price pressures are building in Brazil as the government also reduced taxes, boosted credit and pushed banks to trim borrowing cost in an effort to revive the slowest growth in three years.

“Unless inflation calms down by the end of the first quarter, the bank may have to start reexamining its position on rates,” Daniel Snowden, emerging markets analyst at Informa Global Markets, said by telephone from London. “They’ll cling on for a little while, but right at the start of the year we’re already over 6 percent.”

Swap rates on the contract maturing in January 2015, the most traded in Sao Paulo today, rose one basis point to 7.89 percent at 10:15 a.m. local time. The real strengthened 0.1 percent to 2.0408 per U.S. dollar.

Stable Rates

The central bank’s monetary policy committee unanimously decided last week to hold the Selic rate at its record 7.25 percent low, citing “the balance of risks for inflation, which worsened in the short-term.” Policy makers reduced the Selic rate by 525 basis points from August 2011 to October 2012.

The central bank said the best way to guarantee convergence of inflation to its target is maintaining stable monetary conditions for a “sufficiently prolonged period of time.” Consumer price increases have exceeded the bank’s 4.5 percent goal in the last 29 months.

Economists in the latest central bank survey increased their 2013 inflation forecast for the third straight week to 5.65 percent.

Widespread Inflation

Mid-month inflation has exceeded the median estimate of economists for seven straight months. Inflation through mid-January was boosted by a 1.8 percent jump in personal expenses and a 1.45 percent rise in food and beverage prices. Housing and transport prices increased 0.74 percent and 0.68 percent, respectively.

“It’s not just a temporary effect, it’s a widespread phenomenon,” Jankiel Santos, chief economist at Banco Espirito Santo de Investimento SA, said by telephone. “That’s why it’s so hard to believe in an improvement in the inflation dynamic from now on, which is what the central bank is betting on.”

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