Brazil Mid-March Inflation Slows Less Than Analysts Forecast

Brazil’s inflation in the month through mid-March slowed less than economists estimated, as prices for food and government-regulated prices jumped.

Inflation as measured by the benchmark IPCA-15 index slowed to 1.24 percent from 1.33 percent a month earlier, the national statistics agency said on its website today. That was above the median 1.23 percent forecast from 42 analysts surveyed by Bloomberg. Annual inflation sped up to 7.90 percent from 7.36 percent.

For the first time since it adopted targeting in 1999, the government in 2015 will not only miss its year-end inflation target but Brazil’s economy will also contract, according to analysts surveyed by Bloomberg. Having committed to slowing inflation to 4.5 percent next year, policy makers have raised borrowing costs to a six-year high, with more tightening in store.

“On one hand we have huge deceleration in Brazil this year and it may hit next year’s inflation,” Roberto Padovani, chief economist at Votorantim Ctvm, said by phone from Sao Paulo. “On the other we’re seeing a lot of inflationary pressures, so everyone is trying to understand how the central bank will react to this environment. It’s not new, but today’s number reinforces this discussion.”

Swap rates on the contract due in January 2017 fell six basis points, or 0.06 percentage point, to 13.59 percent at 9:47 a.m. local time. The real weakened 0.3 percent to 3.3005 per U.S. dollar.

Food, Fuel

Electricity, food and fuel accounted for more than three-quarters of the month’s inflation. Prices for food and beverages rose 1.22 percent after a 0.85 percent increase the previous month. Housing costs rose 2.78 percent after a 2.17 percent jump in mid-February, due to a 10.91 jump in electricity prices. Transport prices increased 1.91 percent after a 1.98 percent rise last month.

“The strongest adjustments to regulated prices have already passed, though we will have electricity adjustments throughout the year,” Leonardo Costa, an economist at Rosenberg Consultores Associados, said by phone from Sao Paulo. While monthly inflation readings will slow, the annual rate will continue to accelerate a bit more, he said.

Policy makers have raised the benchmark interest rate at four straight monetary policy meetings to 12.75 percent.

11th Straight

Economists surveyed March 13 by the central bank increased their 2015 inflation forecast for the 11th straight week, to 7.93 percent, above the 6.5 percent ceiling of the government’s target range. They forecast borrowing costs will finish 2015 at 13 percent as the economy contracts 0.78 percent.

A weaker real is also boosting the cost of imports. Brazil’s currency has lost 19.5 percent this year against the U.S. dollar, the worst performance among the 16 major currencies tracked by Bloomberg, and yesterday closed at its weakest level in nearly 12 years.

The real will probably stabilize at a more depreciated level, Planning Minister Nelson Barbosa said Tuesday at a Senate hearing. The central bank’s program to sell daily currency swaps that has helped to support the real is set to run through March 31, after which it could be ended or extended with new terms.

In order to shore up government accounts, Finance Minister Joaquim Levy has raised some taxes and sought to cap spending to shrink the deficit and avert a credit-rating downgrade. He also met with Fitch Ratings on Wednesday to discuss further measures he plans to implement as part of his fiscal adjustment.

Brazil’s consumer confidence as measured by the Getulio Vargas Foundation in February hit its lowest level since at least 2005, when the survey began.

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