UPDATE 3-Brazil inflation speeds more than expected in month to mid-Jan

Wed Jan 23, 2013 11:41am EST

Related Topics

* IPCA-15 index up 0.88 pct in month to mid-Jan
    * Data surpasses expectations of 0.83 pct
    * 12-month inflation accelerates to 6.02 pct
    * Gov't official sees smaller CPI in full January


    By Asher Levine
    SAO PAULO, Jan 23 (Reuters) - Inflation in Brazil rose
faster than expected in the month to mid-January, inching
dangerously close to the ceiling of the central bank's official
target range though probably not enough to force the bank to
raise interest rates from a record low.
    Brazil's benchmark IPCA inflation rate rose
0.88 percent in the month to mid-January, statistics agency IBGE
said on Wednesday, above expectations for an increase of 0.83
percent and surpassing all estimates in a Reuters poll. In the
month to mid-December, the index rose 0.69 percent.
    In the 12 months to mid-January, inflation accelerated to
6.02 percent, up sharply from 5.78 percent one month before. 
    The central bank targets inflation at 4.5 percent, plus or
minus 2 percentage points. The rise in consumer prices has been
above the midpoint of the target for more than two years. 
    Inflation was just one factor behind a disappointing 2012
for Brazil's economy, which is expected to have grown less than
1 percent in 2012 despite low interest rates and an avalanche of
stimulus measures from President Dilma Rousseff's government.
    The bank, which cut benchmark interest rates ten straight
times until October last year to a record low of 7.25 percent,
acknowledged the short-term inflation outlook had worsened in
the statement following its latest meeting. 
    A senior member of Rousseff's economic team told Reuters,
however, that the full January inflation print will likely be
smaller than the mid-month figure as price pressures ease.
    "The convergence of inflation towards the target is very
clear this year," the official, who asked not to be named in
order to speak freely, said shortly after the release of the
inflation print. "We don't see inflation as a problem in the
outlook for the Brazilian economy."
    A sharp commodity supply shock, which was the main driver of
the spike in prices last year, is finally easing and that should
help reduce inflation over the first and second quarters, the
source said. He added that a more stable exchange rate for
Brazil's currency and a drop in electricity rates along
with tax cuts for some companies should also contribute to the
more positive inflation outlook.   
    Many market analysts disagree and see inflation piercing the
official target ceiling at some point this year, later easing to
about 5.65 percent. The central bank predicts inflation of 4.8
percent this year and 4.9 percent in 2014. 
       
    ON HOLD FOR SOME TIME 
    "Despite the complicated inflation outlook, we aren't
expecting an increase in interest rates," said Alessandra
Ribeiro, an economist with Tendencias Consultoria in Sao Paulo.
"The central bank has signaled that they will remain in place
for a prolonged period ... if we see inflation threatening to
break the top (of the target range), we think we'll see more
measures of a fiscal nature, such as tax breaks."
    The bank's latest projections suggest that an upcoming 20
percent cut in electricity prices should shave a full percentage
point off consumer inflation by the end of 2013, a government
source told Reuters on Tuesday. 
     Rousseff will announce bigger-than-expected reductions in
electricity rates as early as Wednesday, a government source
with direct knowledge of the plans told Reuters. 
    "The government is certainly more worried now but I don't
think it will change the discourse," said Gustavo Mendonca, an
economist with Saga Capital in Rio de Janeiro. "At least for the
next few months they will maintain that the effect of the energy
cuts will have a positive shock on inflation ... they are trying
to hold back (inflation) expectations."
     In the month to mid-January, food prices accelerated to a
rise of 1.45 percent from 0.97 percent in the month to
mid-December, IBGE said on Wednesday. Fresh vegetable and fruit
prices were the main drivers of the rise.
    The IBGE said prices of personal expenses rose 1.80 percent
in the month to mid-January, up from 1.10 percent in the prior
period, as the price of cigarettes rose 7.05 percent and prices
of leisure trips jumped 16.18 percent.
    Domestic goods such as televisions, computers and home
appliances rose 0.45 percent.
    The IPCA-15 index had been expected to rise 0.83 percent in
the month to mid-January, according to the median of 31
forecasts. Estimates ranged from 0.71 percent to 0.87 percent.
    Below is the result for each price category:   
    
                                 December   January
                                                   
 - Food and beverages                0.97      1.45
 - Housing                           0.74      0.74
 - Household articles                0.11      0.45
 - Apparel                           0.62      0.12
 - Transport                         0.71      0.68
 - Health and personal care          0.26      0.61
 - Personal expenses                 1.10      1.80
 - Education                         0.10      0.33
 - Communication                     0.26     -0.06
                                                   
 - IPCA-15                           0.69      0.88
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