Brazil Industrial Output Climbs on Capital Goods (Update2)

By Andre Soliani and Jeb Blount
April 1 (Bloomberg) -- Brazil's industrial output climbed the most in four months in February, boosting expectations policy makers will raise interest rates to rein in the economy's expansion as inflation quickens.
Output climbed 9.7 percent in February from the year earlier month, the government said today. It was the 20th straight gain in year-on year industrial production.
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 quickens above the 4.5 percent annual consumer prices target.
Today's report shows that output is ``growing strongly'' and reinforces a call for a quarter-point rate increase at the bank's April 15-16 meeting, Luiz Gustavo Cherman, a Sao Paulo- based economist at Citigroup Inc., wrote in a e-mail report.
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 and the 9.5 percent median forecast in a Bloomberg survey of 25 economists.
Trendline
Annual inflation, as measured by the benchmark IPCA index, jumped to 4.61 percent in February from an eight-year low of 2.96 percent in March.
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.
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.
Economists such as Maurcio Oreng, at Itau Corretora in Sao Paulo, say the increase in machinery production indicates companies are stepping up investments to boost production.
After stripping out seasonal factors, output fell 0.5 percent in February from January, the agency said.