Brazil’s Widest Measure of Inflation Rises 1.67 Percent in March, Beats Forecasts

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Brazil’s Widest Measure of Inflation Rises 1.67 Percent in March, Beats ForecastsBrazil’s widest inflation measure surged 1.67 percent in March, exceeding economists’ estimates as drought fuelled a rise in food prices.

The IGP-M index, which measures consumer, wholesale and construction prices, had earlier risen 0.38 percent last month, according to the Getulio Vargas Foundation. The advance was the highest since July 2008, and exceeded the median estimate of 1.53 percent increase in a Bloomberg survey of 31 analysts.

The IGP-M index has surged 7.3 percent in the last 12 months. Brazilian policymakers expect increases in consumer prices to hasten this year even after they hiked the benchmark rate higher than most countries minus Turkey.

Brazil’s worst drought in decades threatens to ruin harvests, while weaker currency and an almost record-low unemployment are placing upward pressure on consumer prices, which prompted S&P to downgrade Brazil’s credit rating this week. This increases the likelihood that the central bank will continue raising interest rates past April. 

“You have another surge in inflation and that’s a problem,” Pedro Tuesta, a senior Latin American economist told Bloomberg. “The central bank will probably have to hike more than they were expecting.”

Swap rates maturing on January 2015 climbed one basis point to 11.15 percent as of 9 am in Friday’s trade in Sao Paulo. The real fell 0.2 percent to 2.2635 a U.S. dollar.

Wholesale prices surged 2.2 percent in March, up from a decline of 0.43 percent in February. Wholesale prices of soy rose 4.1 percent, while corn inched 10.95 percent higher. Food prices jumped 1.55 percent; while consumer prices grew 0.82 percent, up from 0.7 percent last month.

Economists estimate inflation to rise to 6.28 percent this year, up from 5.91 percent as of Dec. 31 last year. Unemployment rate is currently hovering around 5.1 percent.

To contact the reporter of this story; Jonathan Millet at john@forexminute.com