Brazil March Consumer Prices Up Less Than Analysts Forecast

Brazil’s consumer prices rose less than economists forecast in April, cementing bets the central bank will keep rates unchanged in its next meeting this month.

Inflation as measured by the benchmark IPCA index decelerated to 0.67 percent from 0.92 percent in March, the national statistics agency said today in Rio de Janeiro. That was slower than the 0.79 median forecast from 45 analysts surveyed by Bloomberg. Annual inflation quickened to 6.28 percent from 6.15 percent, marking its fastest rate since June.

Support for Brazil’s President Dilma Rousseff has faltered ahead of October elections as inflation continues to run near the top of the government’s target range. Her efforts to jump-start economic growth have been moderated by the central bank increasing its benchmark Selic in nine straight monetary policy meetings. Amid higher prices and interest rates, consumer confidence has plummeted.

“The data today reinforce the central bank’s earlier signal that the rate increase cycle of 2014 has ended,” Roberto Padovani, chief economist at Votorantim Ctvm, said by phone from Sao Paulo. The bank next meets on May 27-28.

Swap rates on the contract due in January 2017, the most traded in Sao Paulo today, fell 8 basis points, or 0.08 percentage points, to 12.04 percent at 2:43 p.m. local time. Brazil’s currency, the real, weakened 0.34 percent to 2.2225 per U.S. dollar.

Food, Beverages

The biggest pressure on consumer prices came from food and beverages, which rose 1.19 percent in the month after increasing 1.92 percent in March, the statistics agency said in today’s report. Transport prices rose 0.32 percent, down from 1.38 percent the month prior.

The first preview of May inflation as calculated by the Fundacao Getulio Vargas’ IGP-M index, which is 60 percent weighted in producer prices, accelerated 0.06 percent, according to a report released today. That was below all estimates from 10 economists surveyed by Bloomberg, whose median forecast was for prices to rise 0.37 percent.

Rousseff’s lead ahead of the election narrowed to a margin too small to call a first-round win, according to a Datafolha poll released today. The sum of all of Rousseff’s 10 challengers exceeds her 37 percent support by one percentage point. To win in the first round a candidate needs to have more than 50 percent support, or more votes than all other candidates added together. The survey of 2,844 people taken May 7 and 8 has a margin of error of plus or minus two percentage points.

Consumer confidence in April fell to the lowest level in almost five years.

Interest Rate

The central bank has responded to above-target inflation with interest rate increases since April 2013. The total 375 basis points of tightening, to 11 percent, over the past year trails only Turkey among major economies. Bank directors led by Alexandre Tombini halved the pace of increases to 25 basis points in the last two meetings following six straight half-point increases.

The central bank at the start of the year extended for six months a program to bolster the currency after it depreciated 13 percent in 2013, offering as much as $200 million in foreign exchange swaps auctions daily through at least June 30. The real has appreciated 6.3 percent in 2014, more than all other major currencies, tamping the price of imported goods.

Analysts polled May 2 by the central bank estimate Brazil’s currency will weaken to 2.45 per dollar by the end of 2014 as inflation reaches 6.5 percent. Policy makers target 4.5 percent inflation, plus or minus two percentage points.

“What is of interest is what is happening before our eyes,” Finance Minister Guido Mantega said in a video posted on television channel Globo’s website. “Inflation is falling and, as such, I don’t believe we will surpass the target ceiling.”

‘Lower Level’

“We have been working to keep inflation under control and to bring it in the future to a lower level,” Tombini said in an event in Sao Paulo May 6. The bank targets inflation of 4.5 percent plus or minus two percentage points.

Prices regulated by the state, such as public transport, electricity and fuels, rose 3.80 percent in the 12 months through April versus 3.43 percent in March. Regulated prices will rise about 5 percent in 2014, Tombini said at the event.

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