MercoPress. South Atlantic News Agency

Brazilian inflation remains untameable; Real hits a new high

Alexandre Tombini, president of the Central Bank that is expected to raise borrowing costs another 50 basis points to 12.25% at the end of the month

Brazilian inflation accelerated more than economists expected in March from a year earlier, led by food and transportation costs, taking the annual rate near the upper limit of the government’s target range. On Thursday the Brazilian currency Real also further strengthened to a record 1.58 to the US dollar in spite of the latest measures.

Consumer prices rose 6.3% in March from the same month a year earlier and 0.79% from February, the national statistics agency said this week. Finance Minister Guido Mantega last March anticipated monthly inflation might slow to 0.45% as Brazil’s economy decelerates toward 5% growth in 2011.

The last time the index was so close to exceeding the target range was November 2008, when it reached 6.39%. Brazil targets inflation of 4.5% plus or minus two percentage points.

Food prices accelerated 0.75% in March from 0.23% in February, fuelled by higher prices of eggs, potatoes, sugar, milk and beans, the agency said. Transportation prices rose 1.56% compared with 0.46% the previous month, as plane tickets rose 29% due to demand during the Carnival holiday.

The central bank, in its quarterly inflation report published March 30, said the cost of meeting its 4.5% inflation target this year is “too high,” prompting traders and analysts to revise their interest rate outlook.

The eight-member bank board, known as Copom, said monetary policy will seek to ensure inflation slows toward 4.5 percent by 2012, according to the report.

Brazilian manufacturers increased the use of installed capacity to a record 83.6% in

February, from a revised 83.1% in January, the National Industrial Confederation said in a report released in Brasilia. After falling for two straight months, industrial sales rose 6.9% in February from January, the CNI said.

Policy makers led by central bank President Alexandre Tombini raised the benchmark rate by 50 basis points at each of their two meetings in 2011 to 11.75 percent.

Economists covering Brazil economy raised their forecast for 2012 inflation to 5% from 4.91% according to a central bank survey of about 100 economists published April 4. The same survey showed economists expected a 0.65% rise in prices in March.

Economists in the survey raised their 2011 inflation forecast to 6.02%, up from a week-earlier forecast of 6%.

Analysts expect the central bank to raise borrowing costs by 50 basis points, or 0.5 percentage points to 12.25% at its April 19-20 policy meeting, the survey found.

However in spite of the government’s efforts and latest measures the Brazilian currency strengthened beyond 1.60 per dollar for the first time since August 2008, after it advanced 1.7% on Thursday to 1.5863 per dollar. It was the biggest daily increase since Oct. 5.

Finance Minister Guido Mantega reiterated Thursday that gains by the Real (against other currencies) are “unavoidable”.