Brazil Economists See Inflation Nearing Target Range Limit

Brazil economists raised their 2014 and 2015 inflation forecasts for the second straight week, as a food price shock adds to inflationary pressure in the world’s second-biggest emerging market.

Brazil’s inflation will accelerate to 6.47 percent this year, compared with the previous week’s forecast of 6.35 percent, according to the April 11 central bank survey of about 100 analysts published today. Analysts raised their 2015 consumer price estimates to 6 percent from 5.84 percent. Both forecasts are at the highest levels since the central bank started publishing those figures.

President Dilma Rousseff’s administration is working to balance policies aimed at taming above-target inflation without compromising economic growth. Central bank President Alexandre Tombini on April 10 signaled policy makers may pause the world’s longest tightening cycle even as the pace of consumer price increases quickens. The International Monetary Fund last week cut its 2014 growth estimate for Brazil as an emerging market recovery remains weak.

Swap rates on the contract due in January 2015 fell two basis points, or 0.02 percentage point, to 11.05 percent at 9:23 a.m. local time. The real strengthened by 0.4 percent to 2.2103 per U.S. dollar.

The central bank may halt its current cycle of rate increases, Tombini told the Wall Street Journal on April 10. Inflation will fall once a food price shock passes, Tombini told reporters in Washington DC the same day.

Food, Beverages

Consumer prices as measured by the benchmark IPCA index accelerated to 0.92 percent in March from 0.69 percent in the month prior, surpassing analyst estimates and pushing the annual rate to an eight-month high of 6.15 percent. Food and beverage inflation surged 1.92 percent in March, up from 0.56 percent in February.

Brazil is experiencing renewed external and local food pressures, central bank director Luiz Pereira said in an April 11 presentation in Washington. Policy makers target annual inflation at 4.5 percent, plus or minus two percentage points.

Brazil’s central bank on April 2 raised the Selic by 25 basis points to 11 percent. Prices have not felt the full brunt of 375 basis points in total borrowing cost increases implemented since last April, policy makers said in the minutes to their April 1-2 meeting.

Brazil’s retail sales in February grew at half the pace of the month prior as consumer confidence remains muted, according to the median estimate from 26 economists in a Bloomberg survey. The national statistics agency will release the official retail figure tomorrow.

Analysts in the central bank survey cut their 2014 industrial production forecast to 0.70 percent from 1.50 percent the week prior.

Growth in Latin America’s largest economy will slow to 2 percent this year from 2.3 percent in 2013, according to central bank estimates. Brazil’s growth has trailed the Latin America average since 2010, according to data compiled by Bloomberg. Economists in the survey released today forecast growth of 1.65 percent.

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