RPT-UPDATE 2-Brazil Nov inflation unexpectedly faster on airfares, fuel

Fri Dec 7, 2012 7:56am EST

* Consumer prices rises 0.6 pct from October
    * Data suggests scant room for further rate cuts
    * Transportation prices jump on airfares, fuel


    By Silvio Cascione and Camila Moreira
    SAO PAULO, Dec 7 (Reuters) - Brazil's inflation accelerated
more than expected in November after transportation and
electricity prices spiked, suggesting the central bank ran out
of leeway to further cut borrowing costs.
    Brazil's benchmark IPCA consumer price index 
rose 0.60 percent in November, topping all 35 forecasts in a
Reuters poll, government statistics agency IBGE said on Friday.
    The index had been expected to rise 0.50 percent, according
to the median forecast. The IPCA rose 0.59 percent in October.
    In the 12 months through November, inflation
quickened to 5.53 percent compared with a rise of 5.45 percent
in the 12 months through October. 
    The government targets inflation at 4.5 percent, with a
tolerance margin of plus or minus 2 percentage points. 
    Although the annual inflation rate remains within the
government's goal, the unexpected rise in prices highlights the
risk of further reducing rates in coming months. Central banks
around the world raise interest rates to curb inflation and
lower them to stimulate economic growth.
    The central bank, which slashed borrowing costs ten straight
times to a record low of 7.25 percent over the past 15 months,
has signaled it will likely leave its benchmark Selic rate on
hold for a long time to keep a lid on inflation as the economy
picks up steam.
    Central bank president Alexandre Tombini reiterated late on
Thursday that the interest rates should remain at their current
level for a "prolonged" period. Before that, several banks such
as Barclays and Itau BBA started to bet on further rate cuts to
stimulate economic growth, which disappointed in the third
quarter.  
     
    Yields on interest rate futures rose after the
inflation numbers were released, suggesting most traders saw a
lower probability of interest rate cuts next year.
    "We are in a technical pause now, assessing how the policy
measures already adopted will affect inflation," said Rafael
Leao, an economist with Austin Ratings, in Sao Paulo.
    "I don't think today's numbers are worrisome, there is no
such thing as an inflation bout. But we need some small
accommodation to see a better year in 2013."
    Transportation prices rose 0.68 percent in November, up from
0.24 percent in October, on higher airfares, fuel and new
automobile prices. Housing prices accelerated to a rise of 0.64
percent from 0.38 percent in October because of higher energy
tariffs in Rio de Janeiro and Belem.
    Electricity prices will drop next year after the government
negotiated an early renewal of power concessions in exchange for
lower rates. However, the decline will be smaller than President
Dilma Rousseff hoped for as several utilities rejected the
offer. 
    Food prices slowed to a rise of 0.79 percent, from 1.36
percent in October. They should accelerate back in December
because of higher prices of food away from home, milk, beans and
other items, economists at LCA Consultores said, leading the
headline IPCA index to another increase of around 0.6 percent.
     Below is the result for each price category:     
    
                               November    October
 - Food and beverages          0.79        1.36
                                           
 - Housing                     0.64        0.38
                                           
 - Household articles          0.47        0.37
                                           
 - Apparel                     0.86        1.09
                                           
 - Transport                   0.68        0.24
                                           
 - Health and personal care    0.32        0.48
                                           
 - Personal expenses           0.53        0.10
                                           
 - Education                   0.05        0.05
                                           
 - Communication               0.31        0.31
                                           
                                           
 - IPCA                        0.60        0.59
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