Brazil’s inflation accelerated for the 12th straight month in August to its fastest annual rate since 2005. Consumer prices, as measured by the IPCA index, rose 0.37% in August from the previous month, the national statistics agency reported on Tuesday. Prices rose 7.23% from a year ago, the highest since June 2005.
The inflation report follows the recent cut in the Central bank benchmark interest rate to 12% on August 31, after raising it at the previous five policy meetings, in the most abrupt turnaround in monetary policy since 1999.
The bank said a “moderate adjustment” in the key rate wouldn’t compromise its 4.5% inflation target next year because of a “substantial deterioration” in the global economy.
Last week’s rate cut prompted analysts covering the Brazilian economy to increase their inflation forecasts for next year and 2013.
Consumer prices will rise 5.32% next year, according to the median forecasts in a Central bank survey of about 100 economists published Monday. The forecasts were up from 5.2% the previous week. The benchmark Selic rate will fall to 11.88% by the end of 2012, the survey found.
Core inflation rose 0.42% in July, from 0.37% in June, and should continue to rise in coming makes, making further cuts unadvisable, Flavio Serrano, an analyst for Espirito Santo Investment Bank, said in a report.
The increase in prices last month was the biggest since a 0.47% rise in May. Food prices rose for the first time since May, jumping 0.72% in August. Transportation costs fell 0.11%. Clothes prices rose 0.67%, while housing increase 0.32% and household goods jumped 0.57%.
Central bank president Alexandre Tombini has said that the pace of price increases will start to slow in September.
Brazil’s economic growth slowed last quarter the most since its 2009 recession, growing 3.1% from a year earlier. Growth was led by a 4.9% xpansion in the retail sector, while imports surged 14.6% after the Super Real hit a 12-year high during the quarter.
A new report on Tuesday showed that manufacturers reduced production in July. Installed capacity fell to 82.1%, its lowest level since February 2010 and down from 82.4% in June.
While inflation has shown signs of slowing, rising wages are still bolstering demand. Brazilian unemployment fell to 6% in July, (the lowest level this year), and salaries for autoworkers have risen as much as 20% in recent weeks. Brazil’s minimum wage, which is used to adjust pension payments, is slated to rise 14% next year.
President Dilma Rousseff is counting on further rate cuts this year and has told the central bank she will reinforce fiscal measures to pay for the shift in monetary policy, Folha de Sao Paulo reported Tuesday.
Rousseff considers it a good moment to bring rates down to the level of developed nations, which would help convince lawmakers to limit public spending, according to the newspaper.
“There can be no doubt about us continuing our rigorous strategy of containing inflation” Finance Minister Guido Mantega said in an interview in Sao Paulo on Sept. 2.
Government efforts to contain spending will assist the central bank in its inflation fight and complement a “more active” use of monetary policy, Mantega said. The government last month raised by 10 billion Real its budget surplus before interest payments target this year, and Rousseff’s administration has no plans to increase salaries for federal government employees in 2012, he said.