Brazil Consumer Prices Jump More Than Forecast in April

Brazilian consumer prices rose more than economists forecast in April, cementing expectations the central bank will continue raising rates to tame prices in the world’s second-biggest emerging market.

Prices as measured by the benchmark IPCA index climbed 0.55 percent in the month, the national statistics agency said today in Rio de Janeiro. The number was higher than all but one estimate from 37 economists surveyed by Bloomberg, whose median forecast was for a 0.48 percent increase. Annual inflation slowed to 6.49 percent, inside the central bank’s target range after breaching it in March. Analysts surveyed by Bloomberg had forecast 6.42 percent.

President Dilma Rousseff’s government has cut taxes on consumer goods and industry and lowered electricity rates to stem inflation while spurring growth. Brazil’s gross domestic product last year grew the slowest among the BRICS group that includes China, India, Russia and South Africa. Price pressures fueled by food costs led the central bank last month to raise borrowing costs by a quarter-point to 7.50 percent after holding them at a record low since October.

’Very High’

“Although we expect some relief from food inflation, we will not see major relief in inflation as a whole, so the central bank will probably keep raising rates at the current rate,” Luciano Rostagno, chief strategist at Banco WestLB do Brasil SA, said in a phone interview from Sao Paulo. “Services inflation continues at a very high level.”

Swap rates on the contract maturing in January 2015, the most traded in Sao Paulo today, fell two basis points, or 0.02 percentage point, to 8.17 percent at 10:31 a.m. local time. The real strengthened 0.3 percent to 2.0010 per U.S. dollar.

The government targets inflation of 4.5 percent, plus or minus two percentage points. Annualized price increases have run faster than the midpoint of the target range since September 2010.

Inflation in April was led by prices of health and personal expenses, which rose 1.28 percent, up from 0.32 percent the prior month, according to the agency. The diffusion index, which measures the extent of inflation throughout the economy, fell to 65.7 percent, the highest rate for the month since 2005, from 69 percent, Rostagno said.

Stepping Up

Policy makers may have to consider stepping up the pace of rate increases to tame prices, Carlos Hamilton, the bank’s economic policy director, said April 25, after inflation reached 6.59 percent in March.

A modest rate-raising cycle lends a measure of credibility to the central bank even as it continues to make growth its priority, said Kathryn Rooney Vera, macroeconomic strategist at Bulltick Capital.

“I think the central bank is fine with inflation at 6 percent,” Rooney Vera said by telephone from Miami. “As long as it doesn’t hit 7 percent, which it just might, I think they’re trying to fuel economic growth.”

The bank’s committee holds its next meeting May 28-29. Economists in the latest central bank survey forecast 5.71 percent inflation, 3 percent growth, and a benchmark rate increase to 8.25 percent in 2013.

Food Shocks

Monthly food prices rose 0.96 percent in April, down from 1.14 percent in March. Wholesale agriculture prices, as measured by the Getulio Vargas Foundation’s IGP-M index, fell 1.82 percent in April, the largest of four consecutive declines.

“We’ve not yet seen the unwinding of last year’s food shocks, and when that does unwind it will knock a fair bit off inflation,” Neil Shearing, chief emerging-markets economist from Capital Economics Ltd., said by telephone from London. “There are underlying constraints on the supply side of Brazil’s economy, and that means inflation is slow to fall.”

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