Brazil's Inflation Accelerates Above All Forecasts in April

  • Food, beverage and health costs accounted for 89% of the jump
  • Market tempers bets on central bank lowering borrowing costs

Brazil’s consumer inflation accelerated more than all analysts forecast in April, pushing the market to temper bets the central bank will lower interest rates.

The benchmark IPCA consumer price index climbed 0.61 percent after a 0.43 percent rise the previous month. That was more than the median forecast for a 0.54 percent increase from 44 economists surveyed by Bloomberg. Twelve-month inflation slowed to 9.28 percent.

Annual inflation at more than double the official target has hurt the confidence of Brazilians whose salaries don’t stretch as far as they once did. Making matters worse, the nation is confronting double-digit unemployment and the prospect of a second year of recession. Many believe the scope of the downturn will provide the central bank room to lower its benchmark interest rate from a near 10-year high.

Swap rates on the contract due January 2018 rose 8 basis points to 12.86 percent at 9:58 a.m. local time.

“This inflation result is helping to drive the swaps up; it is at least part of the explanation,” Enestor dos Santos, principal economist at Banco Bilbao Vizcaya Argentaria SA, said by phone from Madrid. “It’s not time yet for monetary easing.”

Food and beverage prices rose 1.09 percent, following a 1.24 percent jump in the previous month. Health and personal care prices rose 2.33 percent due to higher medicine prices. These two groups accounted for 89 percent of the monthly increase.

Brazil’s central bank kept its key rate unchanged at 14.25 percent at its monetary policy meeting last week. In its prior three meetings two board members voted for an increase, but this time the decision to hold was unanimous. The monetary policy committee said that its base scenario doesn’t permit the hypothesis of more flexible monetary conditions.

“It’s still quite a hawkish line they’re taking, largely not responding to the thaw in inflation,” Edward Glossop, an economist at Capital Economics Ltd., said by phone from London.

With annual inflation slowing, traders and economists expect the central bank will begin to lower rates. Traders are betting policy makers will reduce the benchmark by as much as 175 basis points in the next 12 months, according to data compiled by Bloomberg, and the median forecast from economists surveyed by the central bank is for the Selic to fall to 11.75 percent by end-2017. Some are more optimistic, including BNP Paribas’ Marcelo Carvalho, who on Thursday forecast 525 basis points in cuts through the end of next year.

The monetary authority targets inflation of 4.5 percent, plus or minus two percentage points. It hasn’t fallen within that range since the end of 2014, and was last below the target in mid-2010. The benchmark rate’s current level is the highest since 2006.

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