Brazil's Central Bank Raises Inflation Forecast

Brazil's central bank sees 2008 inflation rising above its annual target of 4.5 percent, increasing speculation the monetary policy board may raise interest rates in the months ahead in an attempt to contain prices. Policy makers increased their inflation forecast for this year to 4.6 percent from 4.3 percent today. The bank also increased this year's growth forecast to 4.8 percent from 4.5 percent.

The bank's policy makers this month considered raising interest rates to stem inflation for the first time since ending two years of cuts in October, the minutes of their March 4-5 meeting showed, but they chose to keep the rate unchanged at a record-low 11.25 percent.

The yield on the overnight interest-rate futures contract for January delivery rose 2.5 basis points, or 0.025 percentage point, to 12.260 percent at 10:56 a.m. New York time That's more than 1 percentage point above the bank's target overnight rate of 11.25 percent, signaling investors are betting that policy makers will boost the rate this year. The yield on the January contract has risen 50 basis points this month.


Brazil's annual inflation rate, as measured by the benchmark IPCA index, climbed to 4.61 percent in February from an eight-year record low of 2.96 percent in March 2007.

The central bank targets inflation of 4.5 percent, plus or minus 2 percentage points to accommodate price shocks.

Separately, the national statistics agency said today that unemployment had risen to 8.7 percent in February, from 8 percent in January. The jobless rate was down from the 9.9 percent registered in January 2007.

Brazil Retail Sales January 2008

Brazil's retail sales rose 11.8 percent in January from January 2007, the national statistics agency said. Retail, supermarket and grocery store sales, as measured by units sold, rose more than the revised 9.5 percent increase in December, the national statistic agency said today.

Brazil Consumer Inflation February 2008

Brazilian inflation slowed in February for a second straight month, reducing the likelihood that the central bank won't be raising rates in the immediate future. Brazil's consumer prices rose 0.49 percent in February from January, the national statistic agency said today. Inflation, as measured by the benchmark IPCA index, decelerated from 0.54 percent month on month rate in January. The annual inflation rate in February remained above the central bank's 4.5 percent target for a second consecutive month, and the year on year rate was up to 4.61 percent in the 12 months up to February from 4.56 percent between January 2007 and January 2008.



The central bank ended its longest cycle of monetary easing last October after a surge in food prices coupled with rising consumer demand raised the chances inflation could accelerate above the 4.5 percent annual target. Policy makers voted last week to hold rates at a record low 11.25 percent for a fourth straight meeting.


Education prices, fueled by seasonal tuition increases, jumped 3.47 percent in February, accounting for almost half of the gain in the IPCA index last month.

Food and beverages inflation, largely responsible for putting the annual rate over target this year, slowed to 0.60 percent in February from 1.52 percent in January.

Brazil's Central Bank Holds Interest Rates

Brazil's central bank kept the overnight rate unchanged for a fourth straight meeting as slowing inflation bolstered confidence the bank's annual target will be met. Policy makers, led by bank President Henrique Meirelles, held the benchmark interest rate at a record low 11.25 percent. Monthly inflation, measured by the benchmark IPCA index, slowed in January to 0.54 percent from 0.74 percent a month earlier.

The central bank brought Brazil's longest cycle of monetary easing since at least 1999 to a halt last October after higher food prices coupled with the fastest economic expansion in more than three years raised concern that inflation could overshoot policy makers' 4.5 inflation target.

Annual inflation in Brazil has been steadily increasing from an eight- year low of 2.96 percent last March to 4.74 percent through mid-February. Since January, the 12-month inflation rate has persistently exceeded the mid-point of the central bank's target of 4.5 percent plus or minus 2 percentage points.

Meat and milk prices were the main driver of inflation in the second half of last year. Food prices in 2007 jumped 10.8 percent, the most in five years, fueled by rising worldwide consumer demand for commodities. Monthly food price inflation decelerated to 1.52 percent in January from a five-year high of 2.06 percent in December.

The yield on the inter-bank deposit contract for Jan. 2, 2009, which reveals trader's future interest rate bets, fell to 11.69 percent from 12.07 percent on Dec. 28. Record-low interest rates coupled with record bank lending has stoked a surge in demand for consumer goods such as home appliances and cars in what is Latin America's biggest economy.

Retail sales were up by 9.6 percent in 2007, the biggest gain since the national statistic agency started the current series in 2001, while industrial output rose less than expected in January, increasing by 8.5 percent from January 2007.