Inflation quickens more than forecast
Figure for November accelerates to 10.48%, the quickest in 12 years as political upheaval threatens economy
Brazil’s consumer prices in November rose more than economists forecast, as President Dilma Rousseff faces impeachment proceedings that hamper attempts to fix the economy.
Consumer prices rose 1.01 per cent in November, up from 0.82 per cent in October, the national statistics agency said on Wednesday. That was above the median 0.95 per cent estimate from 40 economists surveyed by Bloomberg, and the fastest pace in eight months. Annual inflation accelerated to 10.48 per cent, the quickest in 12 years and more than double the 4.5 per cent target.
Inflation running in the double digits has shattered consumer and business confidence and is helping push Brazil into its deepest recession in 25 years. The central bank has signalled it’s ready to resume interest rate increases should policymakers fail to pass fiscal austerity measures, which the government says would tame prices and boost economic growth. With Congress focused on impeachment proceedings, the debate around economic policies has come to a stop.
“The political environment increases our doubts about what the central bank will do, because we know it’s a very complicated scenario,” said Flavio Serrano, senior economist at Haitong in Sao Paulo. “The central bank has increased its hawkish tone, so the chances for hiking process in the beginning of next year have increased considerably.”
Swap rates on the contract due January 2017 fell 1 basis point to 15.77 per cent at 5.47pm local time. The real strengthened 1 per cent to 3.7582 per US dollar. It has dropped 29 per cent this year, the most of all 31 major currencies tracked by Bloomberg.
Wait-and-see stance
Food and beverage prices in November rose 1.83 per cent, after a 0.77 per cent increase in October, the statistics agency said. They were the biggest contributors to last month’s jump in consumer prices, and along with fuel price hikes accounted for two-thirds of the month’s inflation. The central bank has held rates at 14.25 per cent, the highest level since 2006, for three straight meetings as policymakers adopt a wait-and-see stance amid quickening inflation and shrinking gross domestic product. In its November meeting, two of the eight board members dissented in favour of increasing interest rates.
One central banker who voted for a rate hike said Wednesday the risk of doing nothing now is greater than the risk of doing more than enough to control inflation. “It’s prudent to attack the inflation problem now,” central bank director Tony Volpon said in an interview, adding that he hasn’t decide how he will vote in January’s gathering. “Every meeting is a meeting.”
Economists surveyed by the central bank forecast consumer prices will rise 10.44 per cent in 2015, and slow to 6.7 per cent by the end of 2016. The latter would remain above the ceiling of the central bank’s tolerance band, which ranges from 2.5 per cent to 6.5 per cent.
“Our commitment — made by the entire board, not only myself — is that inflation will begin to fall next year and reach the target by at most the end of 2017,” Volpon said in an interview with Bloomberg Television.