Brazil Inflation Quickens More Than Forecast by All Analysts

Brazil’s inflation last month accelerated faster than forecast by all economists, pushing annual inflation to the fastest in three years less than three weeks before presidential elections.

Monthly inflation as measured by the benchmark IPCA index sped up to 0.57 percent from 0.25 percent in August, the national statistics agency said today in Rio de Janeiro. That was higher than every estimate from 40 economists surveyed by Bloomberg, whose median forecast was for a 0.48 percent rise. Annual inflation accelerated to 6.75 percent from 6.51 percent the month prior. Brazil targets inflation of 4.5 percent plus or minus two percentage points.

Inflation that has exceeded the midpoint of the official target for more than four years is eroding consumer and business confidence in an economy that slipped into recession this year. Candidate Aecio Neves says incumbent Dilma Rousseff has mismanaged the economy and pledges to bring inflation to target within two years. Rousseff has pledged a new team and new policies if she is re-elected.

“We need a renewed commitment to drive inflation to the target,” Alberto Ramos, chief Latin America economist at Goldman Sachs Inc., said by phone from New York. “We need tighter monetary policy, tighter fiscal and quasi-fiscal policies. Inflation is one of the key reasons why the economy is not growing and animal spirits in the economy are so contained.”

Swap rates on the contract due January 2017, the most traded in Sao Paulo today, rose seven basis points, or 0.07 percentage point, to 11.84 percent at 2:43 p.m. local time. The real weakened 0.8 percent to 2.4170 per U.S. dollar.

’Pretty Ugly’

Ramos called today’s data “pretty ugly,” highlighting that price increases in five of the nine major groups studied by the statistics institute are running above 7.5 percent on an annual basis.

Food and beverage prices in September rose 0.78 percent, following three straight months of declines, the statistics agency said in today’s report. Transport prices increased 0.63 percent following a 0.33 percent rise last month. This month’s transport rise was due to a 17.85 percent jump in air fares.

Regulated prices for items such as public transport and electricity rose 5.32 percent in the 12 months through September versus 5.07 percent in August. The price of services increased 8.58 percent.

’No Sense’

Neves has named former central bank President Arminio Fraga as his finance minister-designate. Changing the inflation target isn’t necessary, Fraga said in a phone interview Oct. 6. He also said the attempt by Rousseff’s government to artificially control inflation by capping regulated prices “makes no sense at all.”

Rousseff said in the last debate before first-round elections that inflation is “under control.” She also pointed out to reporters Oct. 6 that inflation exceeded the upper limit of the target range for two years when Fraga headed the central bank. The president said in Belo Horizonte on Sept. 3 that she would renew her team and policies in a second term, without providing details.

Neves has also criticized Rousseff for the flagging growth of Latin America’s biggest economy. Gross domestic product contracted 0.6 percent in the second quarter after shrinking a revised 0.2 percent during the first three months of the year, the national statistics agency said Aug. 29. Consumer confidence as measured by the Getulio Vargas Foundation fell in August to its lowest level in more than five years before increasing in September.

Key Rate

Analysts surveyed by the central bank on Oct. 3 cut their 2014 growth outlook for the 19th straight week, to 0.24 percent. That would be the worst performance since 2009.

The central bank on Sept. 3 held the key interest rate at 11 percent for the third straight meeting after raising it 3.75 percentage points in the 12 months through April.

The hypothesis that the government is holding down prices is unfounded, and a drought is pushing up prices including that of meat, the Finance Ministry’s Economic Policy Secretary Marcio Holland told reporters in Brasilia today. Meat prices went up 3.17 percent in September, and had the greatest impact on monthly inflation of any individual item, the institute said.

The central bank on Sept. 29 cut its 2014 inflation forecast to 6.3 percent, assuming the Selic remains at 11 percent, according to its quarterly inflation report. Policy makers reduced their 2014 growth forecast to 0.7 percent.

“There’s a lack of confidence and unless we do something to get back to a sensible macroeconomic policy mix, we won’t see growth really coming back,” Jankiel Santos, chief economist at Banco Espirito Santo de Investimento, said by phone from Sao Paulo. “I don’t see people returning to take important consumption decisions with inflation going up and with uncertainty on the macroeconomic policy side staying at the front of their minds.”

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