Brazil Mid-November Inflation Slower Than All Estimates

Brazil’s consumer prices rose less than economists forecast in the month through mid-November as the central bank carries out the world’s biggest interest-rate increase. Swap rates fell.

Consumer prices as measured by the IPCA-15 index rose 0.57 percent from Oct. 12 to Nov. 11, the national statistics agency said in a report published on its website today. That is slower than every estimate from 35 economists surveyed by Bloomberg, whose median forecast was for a 0.65 percent increase. Annual inflation of 5.78 percent was below analysts’ 5.87 percent estimate.

President Dilma Rousseff’s government has tried to stem inflation by holding down some regulated prices as policy makers contribute to the effort by boosting interest rates. Consumer prices have risen faster than the 4.5 percent target for more than three years, and have come under added pressure this year due to the weakening currency. While the number came in lower than expected, inflation is still widespread, according to Jankiel Santos, chief economist at Banco Espirito Santo de Investimento.

“Of course the central bank is going to celebrate, say they were right, it’s lower than you were expecting, more proof inflation is decelerating,” Santos said by phone from Sao Paulo. “In spite of a better-than-expected headline figure, inflation is still not good.”

Swap rates on the contract maturing in January 2015, the most traded in Sao Paulo today, fell six basis points to 10.68 percent as of 9:36 a.m. local time. The real weakened 0.5 percent to 2.2739 per U.S. dollar, and has fallen 9.8 percent this year.

Rate Cuts

Central bank directors will meet next week after raising the benchmark Selic five straight times. Policy makers last month increased the Selic by 50 basis points, or 0.5 percentage point, to 9.5 percent, 225 basis points higher than in March. Traders are betting on another half-point increase next week.

Economists in the most recent central bank survey of analysts forecast inflation will accelerate to 5.91 percent next year from 5.84 percent at the end of 2013.

Food and beverage prices rose 0.84 percent in the month, up from 0.7 percent the prior period, and had the biggest impact on inflation. Apparel prices rose 0.96 percent, from 0.88 percent the previous month.

More Widespread

The diffusion index, which shows how widespread inflation is across products, rose to 71 percent in November from 66 percent in October, according to Ibiuna Investimentos in Sao Paulo.

Regulated prices, which include such items as electricity and gasoline, rose 1 percent in the year through October, compared with 7.4 percent for non-regulated prices. The government has gone nearly as far as it can in holding down regulated prices, said Neil Shearing, chief economist for emerging markets at Capital Economics Ltd.

“Today’s number is good news insofar as it’s not as bad as some people were expecting,” Shearing said by phone from London. “Inflation is not falling quite as fast as some had hoped, particularly the food component. That means the central bank will remain squarely focused on above-target inflation.”

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