MercoPress. South Atlantic News Agency

Slower job creation and lower inflation indicate Brazilian economy cooling

Labour minister Carlos Lupi: “adjusting the pace”

Brazil reported the third straight month of slower job creation in July, reflecting the slowdown of the economy in the second quarter after a massive 9% year-on-year growth in the first quarter of the year. Traders say this increases the likelihood central bank policy makers may leave interest rates unchanged in their next meeting.

The Ministry of Labour said that the Brazilian economy added 181,796 government registered jobs last month, the smallest number since January. Job creation figures show companies are adjusting their payrolls more cautiously after strong hiring in the beginning of the year, Labour Minister Carlos Lupi said in Brasilia.

“The job market grew a lot in the first months, now it is adjusting its pace,” Lupi said. “As we expect inflation to remain under control we don’t see the need for further interest rate increases.”

The government-registered job creation number is a balance of posts created minus jobs eliminated. Registered jobs assure employees benefits such as unemployment insurance and retirement payments by the government. The economy created 212,952 registered jobs in June and 298,041 in May.

Brazil has added jobs every month of this year as the economy expanded at a 9% annual rate in the first quarter, the fastest pace in 15 years. Last year, Brazil generated almost a million registered jobs.

Traders are reducing bets on rate increases after central bank president Henrique Meirelles said August 16 that inflation expectations are “around” the central bank’s target rate of 4.5% for next year, fuelling speculation that policy makers will stop raising borrowing costs.

Annual inflation slowed to 4.6 percent in July, the lowest level in six months.

Economists’ median growth forecasts have fallen to 7.09% for 2010, down from 7.2% four weeks previously, according to a central bank survey of about 100 economists published this week. The central bank raised the benchmark lending rate, known as the Selic, by a half-point to 10.75% in July.