Brazil November Prices Rise Less Than All Analysts Forecast

Brazilian consumer prices rose less than economists forecast in November as the central bank continued the biggest rate-tightening cycle among major economies tracked by Bloomberg.

Inflation as measured by the benchmark IPCA index decelerated to 0.54 percent from 0.57 percent in October, the national statistics agency said today in Rio de Janeiro. That was lower than forecast by all 37 analysts surveyed by Bloomberg, whose median estimate was 0.58 percent. Annual inflation slowed to 5.77 percent from 5.81 percent, marking its fifth straight decline.

Inflation in Latin America’s largest economy has remained above the goverment’s target throughout President Dilma Rousseff’s almost three years in office. The struggle to contain consumer prices has been complicated by a weakening real, which the central bank has sought to offset by selling currency swaps at the same time as it raises borrowing costs. Today’s decline was driven by a slower increase in food prices as inflation accelerated in other areas, according to Flavio Serrano, an economist at Banco Espirito Santo de Investimento.

“Headline inflation remained almost the same, so basically IPCA excluding foodstuffs climbed in the period,” Serrano said by phone from Sao Paulo. “Despite this figure today suggesting a positive reading, it’s not as positive as the first glance would indicate.”

Swap rates on the contract due in January 2015, the most traded in Sao Paulo today, fell one basis point, or 0.01 percentage point, to 10.67 percent at 10:02 a.m. local time. The real weakened 0.2 percent to 2.3608 per U.S. dollar.

Food Prices

Food and beverage prices in November rose 0.56 percent, down from 1.03 percent the previous month. Housing cost increases accelerated to 0.69 percent from 0.56 percent, while personal expenses rose 0.87 percent, up from 0.43 percent.

The diffusion index, which tracks how widely inflation is spread throughout the economy, rose to 68.2 percent from 67.7 percent the prior month, Serrano said.

Policy makers led by central bank President Alexandre Tombini voted unanimously on Nov. 27 to raise the benchmark Selic rate to 10 percent from 9.5 percent, marking the fifth straight 50 basis-point increase following a quarter-point increase in April.

Inflation remains resistant and the monetary policy committee “considers that continuity of the rhythm of monetary policy adjustments currently under way is appropriate,” according to the minutes from its last meeting, released yesterday.

Swaps Program

As part of the central bank’s efforts to stem inflation, it will extend its program of currency swaps sales and dollar loans to buoy the real into 2014, Tombini said yesterday. The currency, which on Dec. 4 closed at its weakest level versus the U.S. dollar in more than three months, has lost 13 percent of its value this year, making imports costlier.

The bank targets inflation of 4.5 percent, plus or minus two percentage points. Today’s data are unlikely to affect the rate at which the the bank raises rates in January, as inflation remains stuck near 5.8 percent, according to Neil Shearing, chief emerging-markets economist at Capital Economics Ltd.

‘Supply Constraints’

“Annual inflation hasn’t really fallen,” Shearing said by phone from London. “It was always going to fall below 6 percent, but it looks unlikely it’s going to fall below 5.5 percent because of Brazil’s growth model that’s consumption driven with supply constraints.”

Policy makers will raise the Selic to 10.5 percent in 2014 and inflation will accelerate to 5.92 percent, according to economists in the central bank’s latest survey. They forecast growth of 2.5 percent in 2013 and 2.1 percent in 2014.

The survey was conducted before release of third-quarter gross domestic product data, which showed that Brazil’s economy shrank 0.5 percent in the third quarter, its worst performance since the first quarter of 2009, the statistics institute said on Dec. 3. A revision showed the economy also contracted 0.01 percent in the first quarter.

Rousseff’s government has held down inflation by regulating prices for goods and services ranging from water to bus transport, games of chance and fuels. State-controlled oil company Petroleo Brasileiro SA on Nov. 29 announced it would increase gasoline prices 4 percent and diesel prices 8 percent.

Regulated price-growth decelerated to 0.96 percent in the 12 months through November from 1.01 percent the prior month. Services inflation rose 8.55 percent.

Before it's here, it's on the Bloomberg Terminal.