Brazil's inflation points to higher rate

According to Andre Perfeito, an economist at Gradual Investimentos, Brazil’s broadest measure of inflation rose in March at its second-fastest pace in 17 months, reinforcing the “urgent” need for the central bank to start raising rates in April to put a lid on consumer prices.

Consumer, wholesale and construction prices, as measured by the IGP-M price index, jumped 0.94 percent this month, after rising 1.18 percent last month, the Getulio Vargas Foundation said in a report posted on its Web site. The gain was in line with the median 0.93 percent forecast in a Bloomberg survey of 28 economists. The index jumped 1.94 percent from a year ago.

Accelerating inflation has fueled expectations the central bank will raise borrowing costs in Latin America’s biggest economy next month for the first time since September 2008. Policy makers, after leaving the benchmark Selic rate unchanged at 8.75 percent on March 17, said they see prices rising “markedly” faster than their 4.5 percent target this year.

Perfeito says that, “Today’s figure shows it’s urgent that the central bank start tightening monetary policy.”

The yield on the interest rate future contract due in January 2011, the most traded on the Sao Paulo BM&F exchange, was unchanged at 10.36 percent at 10:15 a.m. New York time.

Analysts predict consumer prices will rise 5.16 percent this year, exceeding the midpoint of policy makers’ target, according to the median forecast in a central bank survey published yesterday. The same survey showed economists expect the central bank to raise the benchmark interest rate to 9.25 percent in April.

Worsening Outlook

“Today’s reading adds to doubts on why policy makers kept the rate unchanged at the previous meeting -- until the next one takes place, the inflation outlook will continue to worsen,” Perfeito said.

The central bank targets inflation of 4.5 percent, plus or minus two percentage points.

Wholesale prices rose 1.07 percent in March compared with 1.42 percent in February, the Getulio Vargas foundation report said. Consumer prices rose 0.83 percent in the month, down from 0.88 percent in February.

Source: businessweek.com
Publication date: 3/31/2010
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