Brazil's September Inflation Accelerates More Than Forecast

  • Annual consumer price increases running at double the target
  • Traders skeptical the central bank can hold rates steady

Brazil’s consumer prices in September rose more than economists forecast, as traders wager the central bank won’t be able to avoid raising borrowing costs again to tame above-target inflation.

Monthly inflation as measured by the benchmark IPCA index accelerated to 0.54 percent from 0.22 percent in August, the national statistics agency said in Rio de Janeiro. That was faster than the median 0.52 percent estimate from 40 economists surveyed by Bloomberg. Inflation in the 12 months through September slowed to 9.49 percent from 9.53 percent a month earlier.

Brazil’s annual inflation is running at more than double the official target, fanned by the biggest currency depreciation in emerging markets tracked by Bloomberg. Price indexes will face renewed pressure after state-run oil company Petrobras increased prices of gasoline and diesel. The central bank has repeatedly signaled that it has raised rates enough to slow price increases, while investors remain unconvinced, with swaps markets pricing in more tightening.

“This may lead many to conclude inflation is close to peaking,” Capital Economics emerging-market economist Edward Glossop said from London. “The key thing to remember is inflation is on course to rise very sharply next month, because that’s when these fuel price hikes Petrobras announced last month should feed in strongly to the headline number.”

Swap rates on the contract due January 2017 fell one basis point, or 0.01 percentage point, to 15.22 percent at 9:46 a.m. local time. The real strengthened 0.9 percent to 3.8162 per U.S. dollar. It has dropped 30 percent this year, more than all other major emerging market currencies tracked by Bloomberg.

Food and beverage prices in September rose 0.24 percent, after a 0.01 percent decline in August, the statistics agency said in its report. Housing prices jumped 1.3 percent, after a 0.29 percent increase the month before. That included a 12.98 percent increase in the cost of gas. Transport prices rose 0.71 percent after a 0.27 percent decline the previous month.

The central bank last month held rates steady at 14.25 percent, the highest since 2006, after raising the benchmark Selic by 3.25 percentage points in seven straight meetings. Traders in the swaps market foresee at least 125 basis points of tightening through March.

Last month Petrobras announced it would raise fuel prices for the first time in a year. The increases for gasoline and diesel will add 14 basis points to inflation in 2015, according to Itau Unibanco SA. Capital Economics projects the impact will be even higher, at 20 basis points. Economists surveyed weekly by the central bank forecast inflation will speed up to 9.53 percent by year-end.

Brazil targets inflation of 4.5 percent, plus or minus two percentage points.

For related news and information:
Brazil economic snapshot: ESNP BR
Top Brazil news: TOP BZ

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