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Inflation picking up and lower interest rates, forecasts Brazil central bank survey

Tuesday, September 27th 2011 - 22:45 UTC
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The Brazilian Real has fallen 14% this month against the US dollar The Brazilian Real has fallen 14% this month against the US dollar

Brazil’s central bank will miss its inflation target this year for the first time since 2003 according to a central bank survey of economists. Consumer prices will rise 6.52% this year, according to the median forecast in a Sept. 23 central bank survey of about 100 analysts published Monday.

The forecast was up from 6.46% the previous week, as record unemployment and a weaker currency fuel consumer price increases. The central bank targets inflation of 4.5%, plus or minus two percentage points, and year-end inflation has remained within the target range for the past seven years.

“The report shows that the market expects the weaker currency to contribute to inflation, although not enough to change the central bank’s focus,” said Luciano Rostagno, head strategist of CM Capital Markets in Sao Paulo. “The central bank has signaled that it will keep promoting a policy of cutting rates.”

Central bank President Alexandre Tombini cut Brazil’s benchmark interest rate a half point to 12% on Aug. 31, after raising it at the previous five policy meetings, citing a “substantial deterioration” in the global economy. The bank said lower borrowing costs won’t compromise its 4.5% inflation target next year. Annual inflation in mid-September was 7.33%, the fastest rate in six years.

The Real has fallen 14% this month against the dollar as investors shun emerging market assets on concern Europe’s debt crisis will hurt the global economy. A weakening currency could increase the cost of imported consumer goods, Rostagno said.

Economists held estimates for the benchmark Selic at 11% for the end of this year and 10.75% for year-end 2012, the survey showed.

For the next 12 months consumer prices as measured by the IPCA index will rise 5.76%, from a previous estimate of 5.71%, according to the survey. The forecast rose for the fifth straight week. Prices will rise 5.52% in 2012 the survey showed, up from the previous week’s forecast of 5.50%.

Economists reduced their estimate for 2011 economic growth to 3.51% from 3.52% a week earlier and held their 2012 growth forecast at 3.7%.

Brazil’s unemployment rate was unchanged at 6% in August, a record low for the month, the national statistics agency said on Sept. 22, while average real wages rose 0.5% from the previous months.

Categories: Economy, Brazil.

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