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Friday, December 21, 2007

Brazil Inflation December 2007

Brazilian consumer prices rose in the month through mid-December at their fastest pace in two years, damping expectations that the central bank will resume interest rate reductions any time soon. Consumer prices, as measured by the government's benchmark IPCA-15 index, rose 0.7 percent in the month through mid- December, triple the 0.23 percent in the previous month, the national statistic agency said today on its Web site.

Surging domestic demand on the back of the Brazilian economy's fastest growth since 2004 has pushed up the annual inflation rate from an eight-year low of 2.96 percent to just below the central bank's annual target of 4.5 percent this year.

Brazil's central bank kept its benchmark overnight interest rate unchanged at a record low 11.25 percent at each of the last two meetings on concern rising consumer demand may threaten its inflation target for 2008. In two years through September, policy makers cut rates at 18 straight meetings

Today's inflation report cements expectations that the central bank may not begin cutting rates again until year-end 2008, compared to just a few months ago when many economists said policy makers could resume cuts by March.

The surge in monthly inflation was led by food, fuel and cigarette prices. The IPCA-15 is a mid-month preview of the central bank's benchmark IPCA inflation rate, scheduled for release on Jan. 11.

The price of beans surged 104 percent in the 12 months through Dec. 10, while milk and potato prices climbed 20.5 percent and 70.4 percent respectively.

Latin America's biggest economy expanded 5.7 percent in third quarter, compared with a revised 5.6 percent increase in the second quarter, the government said Dec. 12.

In the four quarters ended Sept. 30, the economy grew 5.2 percent from 4.9 percent in the same period ended in June, the biggest accumulated annual growth rate since the end of 2004.

In a separate report from the national statistics agency, unemployment in the six largest Brazilian cities fell to 8.2 percent, the lowest since the government began a new series for the indicator in 2001.

Average household inflation-adjusted wages, a gauge of disposable income, jumped 2.4 percent from the same month a year earlier.

About 717,000 new jobs were created in November from the year-ago month, spurred by a jump in real estate-related occupations and social work including education and health care assistance, the government said.

Two in every three workers have remained in the same job for at least two years, indicating that the economy's expansion is also helping to stabilize to the nation's workforce.

Yields on interest-rate future contracts rose. The yield on the contract maturing in January 2009, the most widely traded in Sao Paulo's Commodities and Futures Exchange, rose 9.7 basis points, or 0.097 percentage point, to 11.98 percent at 10:45 a.m. New York time.

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