Brazil Industrial Output February 2008

Brazil's industrial output climbed the most in four months in February, increasing expectations policy makers may raise interest rates to rein in the economy's expansion as inflation remains above the central bank target. Output climbed 9.7 percent in February from February 2007, the government said today. It was the 20th straight gain in year-on year industrial production. The annual rate of increase for 2007 was 6 percent, twice the pace of 2006, this was the fastest rate since 2004, when output grew by 8.3 percent.



Cheaper credit and record low unemployment rates have bolstered domestic demand and industrial production. The February gain was more than the revised 8.7 percent increase in January. Driving overall production up in February was the output of capital goods, which rose 25 percent from the year ago month, the agency said. Production of durable goods, such as cars, jumped 20.7 percent.

Brazil's trade surplus also widened to $1.01 billion in March from $882 million the previous month, the Trade Ministry said in a separate announcement. However it is far from clear how this position will evolve moving forward, and Brazil's trade surplus is expected to narrow to $27 billion this year from $40 billion in 2007, according to the most recent central bank forecast. The smaller surplus may lead Brazil to have a current account deficit in the region of $12 billion this year compared with a surplus $1.46 billion surplus in 2007, the bank said.

Coffee exports from Brazil, the world's biggest producer, also weakened last month, falling 5.4 percent in March from February, according to Brazil's Coffee Exporters Council. Brazil shipped 1.72 million bags of coffee beans last month, compared with 1.82 million bags a month earlier.


On the other hand Brazilian inflation accelerated in annual terms in February - although it slowed slightly in monthly terms when compared with January. Consumer prices, as measured by the benchmark IPCA index, rose 0.49 percent in February, compared with a 0.54 percent increase in January, the national statistics agency said last month. The annual inflation rate in February remained above the central bank's 4.5 percent target for a second straight month. Inflation quickened to 4.61 percent in the 12 months through February from 4.56 percent in the previous period.



The central bank said in the minutes of its March 4-5 meeting it considered raising the benchmark interest rate to hold demand, as inflation remained above the 4.5 percent annual consumer prices target. Policy makers, led by central bank President Henrique Meirelles, target annual inflation of 4.5 percent, plus or minus 2 percentage points to accommodate unexpected price shocks.

At the bank's March 4-5 meeting, the board considered raising rates for the first time since October, when they snapped the longest monetary easing cycle since the adoption of inflation targets in 1999. The board voted unanimously to keep the rate unchanged at 11.25 percent for the fourth straight meeting. On March 27, policy makers in their quarterly report increased their forecast for 2008 inflation to 4.6 percent from a previous 4.3 percent.