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Tuesday, November 28, 2006

Brazil 2006 CPI Forecast Raised (Slightly)

According to Bloomberg Brazilian economists have increased their 2006 inflation forecast for a fifth week because of a rise in the cost of food.

Consumer prices in Brazil, Latin America's biggest economy, are forecast to rise 3.15 percent through the end of this year, more than a previous estimate of 3.08 percent, according to the median projection of about 100 economists in a central bank survey taken Nov. 24 and released today.

Brazil's monthly inflation, as measured by the government's IPCA-15 consumer price index, rose 0.37 percent in the 30 days through Nov. 13, compared with a 0.29 percent increase in the month ended Oct. 11, the National Statistics Agency said on Nov. 24.

``This hiccup in the prices of food will likely be reversed by yearend, reinforcing the view that the central bank will keep the current pace of rate cuts at its next policy meeting this week,'' Solange Srour, chief economist at Mellon Global Investment Brazil, said. She expects the central bank to lower the benchmark overnight rate a half-percentage point to 13.25 percent at its Nov. 29 policy meeting.

Brazilian economists also raised their 12-month inflation forecast to 4.17 percent from a previous estimate of 4.13 percent, the survey showed. They held 2007 inflation forecast at 4.1 percent. The central bank has an inflation target of 4.5 percent for 2006, 2007 and 2008.

``As the inflation outlook is still benign for next year and economic growth is moderate, monetary easing should continue in 2007,'' Srour said in a phone interview from Rio de Janeiro.

Brazil's economy will expand 2.94 percent this year, according to the survey, compared with the previous estimate of 2.95 percent. Economists predict growth will quicken to 3.5 percent in 2007.

The economists estimated the Brazilian currency will end this year weaker than previously forecast, with the real at 2.16 per dollar, compared with an earlier estimate of 2.15 per dollar, the survey showed. The currency, which traded at 2.1715 at 9:42 a.m. New York time, has fallen 1.3 percent this month, the second-worst performance of the 16 most-traded currencies.

The economists also raised their 2006 foreign direct investment forecast to $15.9 billion from $15.6 billion the previous week.

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