Brazil Analysts Cut 2012 Inflation Forecast for First Times Since February

Brazilian economists cut their 2012 inflation forecasts for the first time since February, a sign they are more confident that the central bank will succeed in cooling the economy.

Consumer prices will rise 5.15 percent next year, according to the median forecast in a June 24 central bank survey of about 100 economists published today. The figure was down from 5.18 percent the previous week. Prices, as measured by the IPCA index, will rise 6.16 percent this year, the survey found. That’s down from 6.18 percent the previous week and 6.37 percent at the end of April.

“It’s the first time for many months that you see both 2011 and 2012 inflation forecasts going down,” said Enestor Dos Santos, senior Brazil economist for BBVA in Madrid. “The market is putting less pressure on the central bank.”

The central bank raised interest rates for a fourth consecutive meeting this month, raising its benchmark lending rate a quarter-point to 12.25 percent. In the minutes to the meeting policy makers said the inflation outlook is “more favorable” than it was in April, though warned of a risk to their inflation outlook caused by a tight labor market.

The yield on the interest rate futures contract maturing in January 2012, the most traded in Sao Paulo today, fell two basis points, or 0.02 percentage point, to 12.39 percent at 9:07 a.m. New York time. The real strengthened 0.2 percent to 1.6017 per U.S. dollar
Rates Forecast

In today’s survey economists increased their 2012 interest rate forecast for the first time in seven weeks. The benchmark rate will increase to 12.5 percent in July and remain at that level through the end of 2012, the survey found. A week ago, economists saw the Selic ending 2012 at 12.25 percent.

Analysts raised their interest rate forecasts on concern that the government will not be able to rein in spending next year, leaving the central bank to fight inflation pressure on its own, according to Dos Santos.

“Everyone is looking at the minimum wage adjustment in 2012,” Dos Santos said. “Economists don’t expect any help from fiscal policy in 2012.”

The minimum wage is likely to rise more than 13 percent next year, under a formula that takes into account inflation and gross domestic product growth from two years prior, when it expanded at the fastest pace in two decades. Brazil’s government uses the minimum wage to calculate pension payments.

The bank has signaled it may raise rates further this year to cool inflation that has exceeded the upper limit of the government’s target range since April.

Consumer prices rose 6.55 percent in the year through mid- June. The central bank aims to slow inflation back to the 4.5 percent midpoint of its target in 2012.

Economists cut their forecast for 2011 economic growth to 3.95 percent, from 3.96 percent a week earlier, and their 2012 growth forecast was unchanged at 4.1 percent.

Brazil’s unemployment rate fell in May to 6.4 percent, the lowest ever for the month, from 7.5 percent a year earlier. Average real wages rose 4 percent from a year ago, and 1.1 percent from April, to 1,567 reais ($983) per month.