Brazil Mid-Month Inflation Accelerates More Than Forecast

  • Unemployment jumps to double digits for first time on record
  • Food and beverage prices make up 2/3 of mid-April inflation

Brazil’s inflation accelerated more than analysts forecast in the month through mid-April as unemployment entered the double digits for the first time on record.

Inflation as measured by the IPCA-15 index accelerated to 0.51 percent from 0.43 percent a month earlier, the national statistics agency said Wednesday. That compares with the median estimate from 37 analysts surveyed by Bloomberg for a 0.46 percent increase in consumer prices. Unemployment rose to 10.2 percent in the three months through February, the highest since the index was created in mid-2012, the institute said in a separate report.

Brazil’s economy is careening toward its second straight year of recession that jointly will mark the worst downturn in over a century. It has produced massive job losses that have sapped consumer confidence, likewise injured by the political drama over whether President Dilma Rousseff will be ousted. And while the recession has served to slow inflation, consumers are yet to be assuaged as the cost-of-living is still more than double the official inflation target.

Swap rates on the contract due in January 2017 rose 3 basis points to 13.55 percent at 10:15 local time. The real lost 0.8 percent to 3.56 per U.S. dollar.

Prices for food and beverages increased 1.35 percent in the month, accounting for two-thirds of inflation, from 0.77 percent in the month through mid-March, the statistics agency said. Health and personal care prices rose 1.32 percent. Those were behind the upside surprise, and were due to weather-related factors in Sao Paulo state and the government authorizing an increase to medicine prices, according to Leonardo Costa, an economist at Rosenberg Consultores Associados.

In spite of monthly inflation coming in above expectations, 12-month inflation eased to 9.34 percent from 9.95 percent -- its slowest rate since October.

“Until recently we’ve had something of a paradox, because unemployment went up and so did inflation. This has changed; inflation has started coming down, more in line with the increase in joblessness,” Enestor dos Santos, principal economist at Banco Bilbao Vizcaya Argentaria SA, said by phone from Madrid. “It’s not going to be a fast fall, because we can see we still have strong pressures.”

Fiscal reforms to shore up government accounts that would also help slow inflation have been sidelined as the process to oust Rousseff gained speed. On Sunday, the president lost a crucial impeachment vote in the lower house. The political turmoil has weighed on sentiment -- consumer confidence dipped again in March after posting a pair of upticks, and remains close to its historic low.

Family consumption has fallen for four straight quarters. Joblessness rising portends further weakness for consumers, according to Brian Coulton, chief economist for Fitch Ratings.

“It’s hard to see what in the near-term is going to turn this economy around even if we get this reduction in political uncertainty,” Coulton said in an interview in Washington on April 17. “That’s definitely needed, but on its own I’m not sure it is enough as a catalyst.”

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