Brazil analysts cut 2010 inflation rate estimates

Economists in a weekly central bank survey cut for a second week their forecasts for Brazil’s benchmark consumer price index in 2010, an indication that economic activity is decelerating.

In the week through July 16, forecasts for Brazil’s benchmark IPCA inflation index fell to 5.42 percent by year-end, compared with an estimate of 5.45 percent in the previous week, the bank said in its Focus survey on Monday.

The benchmark Selic interest rate, or the cost of borrowing to which most loans are pegged in Latin America’s largest economy, should reach 12 percent by December, unchanged from the previous survey released a week ago. In the week ended on July 2, analysts were predicting the Selic at 12.13 percent by year-end.

The reduction comes days after the government reported flat inflation for June and retail sales that came in below expectations in May. Stable price expectations could prevent the central bank from raising borrowing costs to head off accelerating inflation.

The economists lowered their predictions for July inflation to 0.20 percent from 0.23 percent, underscoring a gradual slowdown in consumer demand that is helping keep prices in check.

The Selic currently stands at 10.25 percent. Policy-makers have raised the rate by 1.5 percentage points so far this year from a record-low 8.75 percent. Eighteen of 21 economists surveyed by Reuters expect the central bank’s Monetary Policy Committee to raise the Selic by 75 basis points to 11 percent when it unveils its interest-rate decision on Wednesday.

For 2011, the inflation estimates were kept at 4.8 percent for the 14th week in a row. The central bank has a 4.5 percent inflation target for 2010 and 2011, plus or minus 2 percentage points.

The economists expect Brazil’s economy to expand 7.2 percent this year, the same rate as in last week’s survey. That would be the economy’s fastest growth rate in at least 14 years.

As a result, economists have increased their estimates for the current account deficit this year to $47.5 billion from $47.2 billion in the prior week. A bigger deficit indicates the economy is growing above trend and is increasingly dependent on imports and services from overseas to keep pace.