Rousseff Says She’s ‘Immensely Worried’ About Brazil’s Accelerating Prices

Brazil President Dilma Rousseff said she’s “immensely worried” about accelerating prices after the central bank slowed the pace of interest rate increases. Yields on interest-rate futures after this year rose.

“We’re immensely worried with inflation,” Rousseff told reporters in Brasilia today. “Under no hypothesis will the government demobilize efforts to control inflation.”

Economists covering Latin America’s largest economy boosted their inflation forecast for the seventh straight week following policy makers’ decision to raise the benchmark interest rate by 25 basis points on April 20. Economists expect consumer prices will rise 6.34 percent this year, up from a week-earlier forecast of 6.29 percent, according to an April 20 survey of about 100 economists published today.

Rousseff declined to comment when asked whether her concern will materialize in new measures to contain consumer prices.

Policy makers made a “wrong move” last week when they decided to raise borrowing costs by 25 basis points, down from increases of 50 basis points at each of their two previous meetings this year, said Alessandra Ribeiro, an economist at Sao Paulo-based Tendencias Consultoria Integrada.

Yields on interest rate future contracts due July 2013 rose as much as 10 basis points, or 0.1 percentage point, before trimming gains to 12.78 percent, at 10:05 a.m. New York time. The real fell 0.3 percent to 1.5702 per dollar.
‘No Consistency’

“Dilma’s speech has no consistency, she believes Brazil can grow 5.5 percent with inflation on target,” Ribeiro said. “She should have a tougher stance on inflation, but the central bank is in line with the Finance Ministry, which is adding money to the economy through the state development bank.”

Consumer inflation accelerated to 6.44 percent in the year through mid-April, its fastest pace since November 2008. Brazil targets inflation of 4.5 percent plus or minus two percentage points.

“There’s nothing to trigger a retreat in inflation,” said Jankiel Santos, chief economist at Espirito Santo Investment Bank in Sao Paulo. “With last week’s rate decision, this makes that case even stronger.”

Policy makers aim to bring inflation back to target in 2012 as the cost of meeting the goal this year would be excessive in terms of lost output, the central bank said in its quarterly inflation report published in March.
Anti-Inflation Tools

The bank will rely on a variety of tools beyond raising interest rates to contain consumer prices, policy makers said in the report. A 50.7 billion reais ($32.3 billion) spending cut mixed with so-called macro-prudential measures, such as higher reserve and capital requirements, taxes on consumer loans, will slow demand that helped the economy grow at the fastest pace in more than two decades last year, they said.

‘The government can be signaling that new measures will be adopted,’’ Luciano Rostagno, chief strategist at CM Capital Markets CCTVM Ltda. “She wants to show that the government as whole is engaged in controlling inflation.”

Rousseff’s administration on March 29 increased to 6 percent a tax on new corporate loans and debt sales abroad by banks. A few days later, she applied the higher tax to renewed, renegotiated, or transferred loans of up to two years in length. Companies previously paid a 5.38 percent tax on loans up to 90 days and zero tax when the operation exceeded three months.
Tax Increases

The government also doubled the so-called IOF tax levied on consumer credit to 3 percent a year. In October, Finance Minister Guido Mantega tripled to 6 percent a tax on foreign investors’ fixed-income purchases.

Inflation may exceed the 6.5 percent upper limit of the target between July and August, the central bank’s economic policy director Carlos Hamilton said March 30.

The central bank survey also showed economists expect gross domestic product to expand 4 percent this year and 4.21 percent in 2012, compared with the previous week’s forecasts of 4 percent and 4.25 percent respectively.