Brazil Analysts Cut CPI Forecast First Time in Nine Weeks

Economists covering the Brazilian economy cut their 2011 inflation forecast for the first time in nine weeks, after monthly inflation unexpectedly slowed in April and commodities prices last week fell the most since 2008.

Consumer prices will rise 6.33 percent in 2011, compared with a week-earlier forecast of 6.37 percent, according to a May 6 survey of about 100 economists published today. Economists’ forecasts for inflation next year were unchanged at 5 percent, the survey showed.

“There are tentative signs that food inflation has shown signs of peaking,” said Neil Shearing, an emerging markets economist at Capital Economics Ltd. in London. “As we get more and more evidence that the commodities shock is passing through the system, we’ll get further downward revisions to these numbers.”

Food price inflation may start to slow in a sustained fashion from September or October, Shearing said, speaking by telephone from London.

Brazil’s central bank raised its benchmark interest rate by a quarter-point to 12 percent on April 20, on top of half-point increases at its January and March meetings. Monthly inflation unexpectedly slowed to 0.77 percent in April, the lowest level since December.
Benchmark Rate

Economists raised their forecast for the 2012 benchmark interest rate for the sixth time this year. The Selic rate will end next year at 12.25 percent, up from a week-earlier forecast of 12 percent, the survey found. Economists expect the rate to be 12.5 percent at the end of this year, unchanged from last week’s forecast.

“The strength of demand in the Brazilian economy is starting to be a real concern,” Shearing said. “There is a sense that fiscal policy isn’t going to do the heavy lifting, it’s going to have to fall to monetary policy.”

The economists surveyed by the central bank expect gross domestic product to expand 4 percent this year. Analysts cut their forecast for 2012 growth to 4.21 percent, from 4.25 percent.

Analysts expect the real to end 2011 at 1.62 per U.S. dollar, unchanged from the previous week’s forecast.
Slower Inflation

In testimony before Congress last week, central bank President Alexandre Tombini said he expects monthly inflation to start slowing in May to a level in line with the bank’s year-end goal. The central bank targets inflation of 4.5 percent, plus or minus two percentage points.

The yield on the interest rate futures contract maturing in January 2013, the most traded in Sao Paulo today, fell two basis points, or 0.02 percentage point, to 12.540 percent at 8:45 a.m. New York time. The real was unchanged at 1.6149 per U.S. dollar.

Annual consumer price inflation accelerated to 6.51 percent in the year through April, the first time the benchmark IPCA index has exceeded the 6.5 percent upper limit of the inflation target since 2005.

The Standard & Poor’s GSCI Index of 24 raw materials advanced as much as 2.5 percent today, after falling 11.15 percent last week.