Brazil inflation accelerates as economy on slow track

21/06/2015 02:09 AST

shrinks and the central bank raises rates. Swap rates rose.

Inflation as measured by the benchmark IPCA-15 index quickened to 0.99% from 0.60% in the previous month. That was above all estimates from 40 analysts surveyed by Bloomberg, whose median estimate was for a 0.85% increase. The seasonally adjusted economic index, a proxy for gross domestic product, fell 0.84% in April, the central bank said Friday, below all but one estimate from 33 economists surveyed by Bloomberg.

Latin America’s largest economy is on track to contract more than every nation in the region except Venezuela this year. That’s done little to slow annual inflation that’s at its fastest in more than a decade. That being the case, the central bank has continued to raise the benchmark Selic rate even with confidence near a record low.

“Usually by the middle of the year we have seasonally lower month-over-month inflation, so this is actually getting worse and we’re seeing a different pattern than we’re used to,” Bruno Rovai, Brazil economist at Barclays, said by phone from New York. “Today’s print definitely increases the risk that we’re seeing more rate hikes.”

Swap rates on the contract due in January 2017 rose 16 basis points, or 0.16 percentage point on Friday. The real weakened 0.9% to 3.0878 per US dollar.

Prices for food and beverages rose 1.21% after a 1.05% increase the previous month, according to Brazil’s statistics institute.

Housing costs rose 1.03% after a 0.85% jump in the month through mid-May. Transport prices rose 0.85%, and personal expenses jumped 1.79% due to an increase in the price of lottery tickets.

The cost of lottery tickets rose 37.8%, accounting for almost one-fifth of the month’s inflation, according to a note from Thais Zara, chief economist at Rosenberg Consultores Associados. Annual inflation sped up to 8.8% from 8.24%, according to the data published Friday. Brazil’s central bank targets consumer price increases of 4.5%, plus or minus two percentage points. With inflation more than four percentage points above the target, policy makers have raised the benchmark rate at six straight monetary policy meetings to 13.75%. Barclays’ Rovai, who forecasts a quarter-point increase at their July monetary policy meeting, says today’s data increases the risk of another half-point boost and is awaiting the bank’s quarterly inflation report.

The central bank will release its quarterly inflation report on June 24, just over a month before the next monetary policy meeting.

Economists surveyed June 12 by the central bank increased their 2015 inflation forecast for the fourth straight week, to 8.79% and expect it to slow to 5.5% next year.

Expectations haven’t dropped sufficiently, central bank director Tony Volpon told investors in London on Wednesday.

The central bank “is avoiding that the substantial rise in this year’s inflation contaminates inflation expectations and likely future inflation performance,” Volpon said, according to a transcript of the speech. “Despite this important feat, this is not good enough. The BCB’s commitment is to have inflation at 4.5%, not 5.5%.”

The median forecast for the seasonally adjusted economic index from economists Bloomberg surveyed was a 0.40% drop, and the decline was more than double that, the central bank said Friday in the report posted on its website. The index dropped a revised 1.51% in March.

Following release of the data, Goldman Sachs Group revised its forecast for contraction in the second quarter to a fall of 1.25% from a prior drop of 1%, according to a note from chief Latin America economist Alberto Ramos.

Economists in the central bank’s weekly survey forecast a 2015 contraction of 1.35%.

Bloomberg