MercoPress. South Atlantic News Agency

In spite of slower growth, Brazil’s consumers and industrial capacity on over time

Tombini expects inflation to peak in August

Economic activity in Brazil expanded 0.17% in May over the previous month, the slowest pace this year, according to the Central Bank’s seasonally adjusted index. As direct reference growth in April was 0.44%. However the May figure is 4.25% over a year ago.

Central bank President Alexandre Tombini has tried to slow Latin America’s biggest economy by raising the benchmark Selic rate at all four of the bank’s policy meetings this year, to 12.25%. Further quarter-point increases this month and in August are anticipated by market analysts.

Since April, Brazilian inflation has exceeded the 6.5% upper limit of the bank’s target range. Consumer prices rose 6.71% in June from a year earlier, the fastest pace in six years.

The central bank targets inflation of 4.5%, plus or minus two percentage points. Tombini has repeatedly said that the central bank aims to slow inflation to the mid-point of the target by 2012 and told a Senate hearing last week that inflation is expected to peak in August.

However other stats give another picture: retail sales recovered in May following an unexpected fall the previous month. Industrial capacity utilization was 82.40% in May, the same level it was in December before the central bank began raising rates. Finally consumer confidence rose in June from May.

Analysts expect growth to slow to 3.94% this year, according to the median forecast in a July 8 central bank survey. In 2010 (electoral year), the economy expanded 7.5%, its fastest pace in more than two decades.