Brazil Consumer Prices Rose 0.79% in March, Nearing Limit of Target Range

Brazil’s consumer price increases slowed less than expected in March, nearing the upper limit of the government’s target range on food prices and transportation.

Annual inflation through March rose 6.3 percent from the same month a year ago, the agency said, nearing the 6.5 percent upper limit of the government’s target range. Economists expected 6.19 percent, according to the median forecast of 25 analysts surveyed by Bloomberg. The last time the index was so close to the target was November 2008, when it reached 6.39 percent.

Inflation was 0.79 percent in March from the previous month, also beating the 0.7 percent median estimate of 36 economists. The government targets inflation of 4.5 percent plus or minus two percentage points.

Food prices accelerated 0.75 percent in March from 0.23 percent in February, fueled by higher prices of eggs, potatoes, sugar, milk and beans, the agency said. Transportation prices rose 1.56 percent in March compared with 0.46 percent the previous month, as plane tickets rose 29.13 percent due to demand during the Carnival holiday.

‘Too High’
The central bank, in its quarterly inflation report on March 30, said the cost of meeting its 4.5 percent inflation target this year is “too high,” prompting traders and analysts to revise their interest rate outlook. The eight-member bank board, known as Copom, said monetary policy will seek to ensure inflation slows toward 4.5 percent by 2012, according to the report.

In the interest rate futures market, contracts maturing in January 2012 rose two basis points, or 0.02 percentage point, to 12.26 percent. The real rose 1 percent to 1.5981 per U.S. dollar at 8:04 a.m. New York time.

Economists covering the Brazil economy raised their forecast for 2012 inflation to 5 percent, from 4.91 percent, according to a central bank survey of about 100 economists published on April 4.

The economists raised their forecast for 2011 inflation to 6.02 percent, up from a week-earlier forecast of 6.00 percent.

Analysts expect the central bank to raise borrowing costs by 50 basis points, or 0.5 percentage point, to 12.25 percent at its April 19-20 policy meeting, the survey found, to cool inflation.

Rate futures contracts show traders are betting the bank will lift the rate to at least 12.5 percent by year-end, down from expectations of an increase to 13.25 percent on March 9.

In a bid to slow the appreciation of the real, which breached a two-year high this week, Brazil extended a 6 percent tax on loans taken abroad to those with maturities of up to two years instead of the previous cap of 360 days.