UPDATE 1-Brazil inflation barely makes target, misses forecasts

Wed May 8, 2013 9:05am EDT

* Brazil annual inflation slows for 1st time since mid-2012
    * Prices rise 0.55 pct from March, above forecasts


    By Silvio Cascione and Asher Levine
    SAO PAULO, May 8 (Reuters) - Brazil's annual inflation
slowed for the first time in nearly a year in April to just
below the official target ceiling of 6.5 percent, offering
support to President Dilma Rousseff whose government is
struggling to contain rising prices without derailing a fragile
economic recovery.
    The results were worse than expected and analysts noted that
price rises were widespread, a sign that the central bank will
probably continue to raise interest rates off record lows in
coming months.
    Brazil's benchmark IPCA consumer price index 
rose 6.49 percent in the 12 months through April, down from 6.59
percent in the previous month. The government targets inflation
at 4.5 percent, with a tolerance of plus or minus two points.
    Consumer prices rose 0.55 percent on a monthly basis,
accelerating from a gain of 0.47 percent in March. The increase
was above the median forecast for a rise of 0.47 percent in a
Reuters poll. 
    Food prices rose less in April than they did in March but
continued to be one of the main drivers of inflation, with the
cost of potatoes surging 16 percent from the previous month.
    Salaries for maids continued to rise over 1 percent a month
after the government introduced legislation extending rights to
domestic workers. Prices of medicines also increased sharply,
rising 2.99 percent from March, IBGE said.    
    The so-called diffusion index, which measures the proportion
of sectors with price increases, dropped to 66 from 69 percent, 
according to Banco Fator estimates. Still, it was the highest
diffusion rate for April since 2005.
    "It's another bad number, and it shows that the government's
diagnostic is wrong on inflation," said Flavio Serrano, an
economist with Espirito Santo Investment Bank. 
    "The government is always talking about inflation being high
because of shocks or limited occurrences. But in reality, we are
seeing an extremely high dispersion of price rises and this is
clearly an inflationary scenario."
    
    Trailing 12-month inflation had accelerated every month
since June last year as prices of food and services soared. The
surge caught policymakers by surprise at a time when no Latin
American peers with inflation targets are worried about prices. 
    Brazil's central bank reacted last month by raising interest
rates from a record low to tame inflation that is seen
complicating Rousseff's likely bid for re-election.
    The bank is expected to increase interest rates by an
additional 0.75 percentage point to 8.25 percent this year,
according to the median forecast in a weekly central bank poll.
Forecasts for full-year inflation in 2013 and 2014 remained
above the mid-point of the target but below its current level,
at 5.71 and 5.76 percent respectively. 
    
    Below is the result for each price category:     
    
                                    March       April
 - Food and beverages                1.14        0.96
                                           
 - Housing                           0.51        0.62
                                           
 - Household articles                0.11        0.63
                                           
 - Apparel                           0.15        0.65
                                           
 - Transport                        -0.09       -0.19
                                           
 - Health and personal care          0.32        1.28
                                           
 - Personal expenses                 0.54        0.61
                                           
 - Education                         0.56        0.10
                                           
 - Communication                     0.13       -0.32
                                           
                                                     
 - IPCA                              0.47        0.55