Brazil January Economic Activity Jumps Most Since June 2008

Brazil’s monthly economic activity rose in January by the most since June 2008, as the central bank continues to raise rates to stem above-target inflation.

The seasonally adjusted economic activity index, a proxy for gross domestic product, rose 1.26 percent in January from the prior month after contracting a revised 1.40 percent in December, the central bank said today in a report posted on its website. The median estimate of 28 economists surveyed by Bloomberg was for a 0.94 percent expansion. Activity expanded by 0.93 percent from the year before.

President Dilma Rousseff faces the dual challenge of boosting economic growth while slowing above-target inflation. The central bank has lifted the key rate by 3.5 percentage points since April as factors including a weaker real fan consumer prices. Finance Minister Guido Mantega this week met with corporate leaders as he tries to attract investments.

“This number shows an increase in activity at the margin,” Andre Perfeito, chief economist at Gradual Investimentos, said by phone. “It’s not enough to make people believe that gross domestic product is doing well. We still need a clearer confirmation of that.”

While the activity index reflects trends in retail and industrial production, it does not fully capture other factors, such as the current account, included in the country’s official GDP result, Perfeito said.

Swap rates on the contract maturing in January 2015 rose three basis points, or 0.03 percentage point, to 11.18 percent at 9:27 a.m. local time. The real weakened 0.3 percent to 2.3718 per dollar.

Largest Economy

Retail sales and industrial output in January exceeded economists’ estimates on higher sales of items from office equipment to capital goods. Latin America’s largest economy expanded 0.7 percent in the fourth quarter from the prior three months, beating analysts’ estimates of a 0.3 percent gain.

Brazil’s economy may grow at a similar pace this year as last as investment flows remain strong, central bank President Alexandre Tombini said in a transcript of a March 12 speech. Tombini’s remarks echoed comments made on Feb. 27 by Mantega, who said economic expansion will be slightly higher this year.

Economists in a weekly central bank survey disagree. They forecast Brazil’s economy will expand 1.68 percent this year compared with 2.3 percent in 2013, according to the survey published on March 10.

Annual inflation in February quickened to 5.68 percent from 5.59 percent the month prior, the national statistics agency said on March 12. Inflation has remained above the 4.5 percent midpoint of the central bank’s target range for more than three years, undermining purchasing power.

The bank on Feb. 26 lifted the benchmark Selic by 25 basis points, or 0.25 percentage point, to 10.75 percent after six straight half-point boosts. The board considers “appropriate the continuation of the adjustments of monetary conditions under way,” according to the minutes to its Feb. 25-26 meeting released on March 6.

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