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Monday, April 20, 2015

Brazil Mid-April Inflation Slows Less Than Analysts Forecast

Brazil’s inflation in the month through mid-April slowed less than economists estimated, increasing economists’ expectations that the central bank will continue its pace of rate increases.

Swap rates rose. Inflation as measured by the benchmark IPCA-15 index slowed to 1.07 percent from 1.24 percent a month earlier, the national statistics agency said on its website today.

That was faster than the median 1.02 percent forecast from 37 economists surveyed by Bloomberg. Annual inflation sped up to 8.22 percent from 7.90 percent. Analysts forecast 8.17 percent.

Inflation running above the government’s target range is adding to the challenges facing President Dilma Rousseff’s economic team.

While monthly inflation probably peaked with the bulk of regulated price adjustments now implemented, it will only recede gradually and force the central bank to continue raising rates in its next monetary policy meeting on Apr. 29, said Neil Shearing, chief emerging market economist at Capital Economics.

“If there was any debate, this will tip the balance toward another 50 basis-point increase,” Shearing said from London. “Inflation is going to remain a problem.”

Swap rates on the contract due in January 2017 rose 16 basis points, or 0.16 percentage point, to 13.18 percent at 9:58 a.m. local time. The real weakened 0.81 percent to 3.0453 per U.S. dollar.

Food, Beverages

Prices for food and beverages rose 1.04 percent after a 1.22 percent increase the previous month. Housing costs rose 3.66 percent after a 2.78 percent jump in mid-March. Prices for clothing rose 0.94 percent. Policy makers have raised the benchmark interest rate in four straight monetary policy meetings to 12.75 percent.

Brazil’s inflation outlook hasn’t improved enough to allow policy makers to stop being vigilant, central bank President Alexandre Tombini said on Apr. 14.

Higher-than-expected mid-April consumer price increases, persistent pressures on services inflation, and recent statements by senior central bank officials “are moving the monetary policy needle towards a 50bp Selic hike,” Alberto Ramos, chief Latin America economist at Goldman Sachs, wrote in a research note on Friday.

As the central bank tightens monetary policy, Finance Minister Joaquim Levy is negotiating spending cuts and tax increases with Congress to repair fiscal accounts, even as the economy is forecast to contract this year.

Economists surveyed by the central bank see 2014 gross domestic product dropping 1.01 percent, while inflation ends the year at 8.13 percent. The bank targets inflation of 4.5 percent, plus or minus two percentage points.

Brazil’s economy grew 0.3 percent in the fourth quarter last year from the three previous months. For full-year 2014, GDP expanded of 0.1 percent, down from a revised 2.7 percent in 2013. The statistics agency used a new methodology to arrive at the GDP numbers.

bloomberg.com

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