Brazil's Inflation May Ease to Slowest in a Year: Week Ahead

By Joshua Goodman
Oct. 6 (Bloomberg) -- Brazil's monthly inflation probably eased to its slowest pace in a year in September, reducing pressure on policy makers to raise rates further.
The government's benchmark IPCA index, scheduled for release Oct. 8, rose 0.2 percent in September from a month ago, according to the median estimate of 14 economists surveyed by Bloomberg. Consumer price inflation has been steadily declining since a three-year high of 0.79 percent in May.
The report may be small relief to policy makers, who after raising interest rates four times since April to bring inflation back to target, must now confront signs that economic growth is being hurt by the global credit crisis. JPMorgan Chase & Co lowered its 2009 growth estimate for Latin America's largest economy to 3.2 percent from 3.8 percent on Sept 26.
``It's unfortunate that just when monetary policy is working its magic into the economy, the Brazilian consumer is beginning to suffer,'' Alvise Marino, an emerging-markets analyst at IDEAglobal in New York, said in a phone interview. ``The central bank is in a tough position.''
Brazilian economists expect policy makers to raise interest rates another 50 basis points, to 14.25 percent, when they meet Oct. 29, according to the latest central bank survey.
Policy makers led by Henrique Meirelles last month raised rates 75 basis points to 13.75, pushing real interest rates, accounting for inflation, to the highest of 54 countries tracked by Bloomberg. Annual inflation running at 6.17 percent has remained above the 4.5 percent midpoint of the government's target range since January.
Industrial output in August fell a seasonally adjusted 1.3 percent, its largest monthly drop this year and more than double the 0.6 percent median forecast in a Bloomberg survey of 20 economists. External funding for corporate loans dropped 2.6 percent in the first two weeks of September from a month earlier, Altamir Lopes, head of research at the central bank, said Sept. 26.
Markets
Last week, the real dropped the most in six years, sinking 9.8 percent to 2.04440 per dollar as a deepening global credit crisis curbed investment in Brazil. It was the steepest decline since September 2002. The real fell 1.1 percent on Oct. 3.
The yield on the government's zero-coupon bond due January 2010 fell 5 basis points 14.55 percent, according to Banco Votorantim SA.
The benchmark Bovespa stock index fell 3.5 percent to 44,517.32 points. Aracruz Celulose SA, the world's biggest pulp producer, led losses after saying it may lose about $1 billion from currency derivatives operations.
The following is list of events in Brazil this week:
Event Date Vehicle Sales, September 10/6 Trade Balance, Weekly 10/6 FGV Inflation IGP-DI 10/7 IBGE Inflation IPCA, September 10/8