Brazil April Inflation Rate Tumbles to 4-Month Low on Recession
Brasilia, May 11 (Bloomberg) -- Brazil's inflation rate
tumbled to a four-month low in April as a recession eroded
consumer demand and a strengthening currency curbed import
prices.
The inflation rate, as measured by the INPC index, fell to
0.47 percent in the month from 1.28 percent in March, the
government's IBGE statistics agency said. That's its lowest rate
since December.
''With the dollar stable, an additional increase in our
prices isn't justified,'' said Luis Felipe Leite, financial
director at Cia. Cervejeria Brahma, Brazil's largest brewer. The
company hasn't raised prices since February, following a currency
devaluation in January.
The plunge in the inflation rate, which had soared after the
devaluation, gives the Central Bank more leeway to lower interest
rates in an effort to pull Latin America's biggest economy out of
recession. The bank has already slashed its benchmark overnight
rate more than one-third in the last seven weeks to 29.5 percent.
Investors are betting rates will fall to 25 percent by July,
according to interest rate futures contracts.
''The only thing that can stop the central bank from
lowering rates is if rates in the Treasury bill and future
markets'' stop falling, said Larry Krohn, chief Latin American
economist at Donaldson, Lufkin & Jenrette in New York.
Inflation Target
April's INPC inflation rate is also important because the
index, one of more than a dozen in the country, could be selected
by the central bank as the index it will use to gauge prices when
it implements an inflation-targeting monetary policy system.
Under the system, which is set to be implemented next month, the
bank will set an annual inflation target and be obligated to
raise interest rates if consumer prices are rising faster than
the target pace.
The government is expected to choose in coming days between
the INPC index and one put out by the Getulio Vargas foundation.
The Vargas foundation is forecasting deflation in its index for
May.
The INPC index rose 3.9 percent in the 12 months ending
April 30. The government expects inflation of 7 percent this
year.
Struggle
Companies have struggled to pass on higher costs stemming
from the devaluation onto cash-strapped customers -- many of whom
are jobless. The unemployment rate surged to a near-record high
in March of 8.9 percent. And those with a job have been forced to
cut spending under the strain of high interest rates.
Some companies have even had to cut prices. That's what Coca-
Cola Co. bottler SPAL did. It slashed prices 20 percent in Sao
Paulo last month after volume sales skidded 10 percent in the
first quarter.
The rallying currency has also helped rein in prices by
lowering the cost in reais of imported goods. After bottoming out
at a rate of 2.2 to the dollar in early March, the real has
gained 31 percent to 1.65 as capital has flown back into the
country and banks and the government have resumed debt sales
abroad.
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