Brazil’s Unemployment Rate in December Falls to Record Low

Brazil’s unemployment rate in December fell to a record low, adding inflation pressure even as the central bank continues raising interest rates. Swap rates rose.

The jobless rate fell to 4.3 percent from 4.6 percent in November, the national statistics agency said in Rio de Janeiro today. That was lower than forecast by 31 economists surveyed by Bloomberg, whose median estimate was 4.4 percent.

Joblessness remained near record lows all last year and helped stoke inflation, which exceeded the government’s target for the fourth straight year. The central bank has responded by raising the benchmark rate in seven successive monetary policy meetings. Today’s data reinforce the likelihood of another 50 basis-point increase, according to Neil Shearing, chief emerging-markets economist at Capital Economics Ltd.

“Conditions in the labor market remain extremely strong,” Shearing said by phone from London. “That is another reason to think the central bank will remain in tightening mode, because that will support nominal income growth.”

Swap rates on the contract maturing in January 2015, the most traded in Sao Paulo today, rose six basis points, or 0.06 percentage point, to 11.49 percent at 10:15 a.m. local time. The real strengthened 0.56 percent to 2.4237 per U.S. dollar.

‘Inflation Expectations’

Inflation ended last year at 5.91 percent, above the central bank’s 4.5 percent target and exceeding all estimates made by 34 analysts in a Bloomberg poll. The bank has raised interest rates from a record-low 7.25 percent to 10.5 percent.

Economists in the latest weekly central bank survey forecast the Selic will reach 11 percent by year-end and the real at 2.45 per U.S. dollar. The currency closed at 2.4373 per dollar yesterday, down 10.3 percent over the prior three months.

“We’ve achieved the lowest unemployment rate in history,” President Dilma Rousseff said in her year-end televised address last month. “We have one of the lowest unemployment rates in the world, and we continue our ongoing fight against high prices.”

The number of people in the labor force fell 0.1 percent to 24.4 million people from last month, and average monthly real income fell 0.7 percent to 1,967 reais ($811), according to the statistics institute. The number of unoccupied people in the labor force dropped 6.2 percent to 1.1 million.

Brazil’s labor market is “overheating” as labor-intensive service jobs increase wages faster than productivity, according to Bill Adams, senior international economist for PNC Financial Services Group.

“The Central Bank of Brazil had already been leaning toward a rate hike in February, and this data point seems to cement the case,” Adams wrote in an e-mailed note. “After the February BCB rate decision, the benchmark Selic rate may have to rise even further to protect the real from depreciation.”

The unemployment survey evaluates the job market in six metropolitan areas and is scheduled to be replaced by a nationwide survey in 2015.

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