UPDATE 3-Brazil inflation ends 2015 above target, cenbank vows action

viernes 8 de enero de 2016 19:48 GYT
 

(Adds finance minister comments in graph 13 and 14)
    By Alonso Soto and Silvio Cascione
    BRASILIA, Jan 8 (Reuters) - Brazil's inflation rate closed
2015 at the highest level in more than 12 years, above 10
percent, overshooting the government's target and prompting the
central bank to vow action to curb prices despite a deepening
recession.
    In a public letter explaining why policymakers missed the
target, central bank chief Alexandre Tombini reaffirmed that the
bank will take the necessary measures to curb prices, signaling
a rate hike despite calls from some politicians and government
peers against it.   
    Consumer prices as measured by the benchmark IPCA index
 rose 10.67 percent in 2015, statistics agency IBGE
said on Friday, well above the official target range of between
2.5 and 6.5 percent.
    Tax hikes, high public spending and a strong El Nino
contributed to Brazil's 2015 inflation being more than predicted
when the year started. 
    Tombini said a weaker real and a sharp increase in
government-controlled prices were also behind the surge in
inflation, which is stoking discontent among Brazilians
struggling with what could be the worst recession in a century.
    Masked youths protesting an increase in bus fares on Friday
clashed with police in Brazil's biggest city, Sao Paulo.
 
    Although the central bank expects inflation to ease back to
the target range this year policymakers are under tremendous
pressure to avoid resuming rate hikes at its next meeting on
Jan. 20.   
    More rate increases could further complicate the political
standing of President Dilma Rousseff, who is scrambling to
strengthen her leftist support base in Congress to survive
impeachment proceedings.     
    The head of her Workers' Party, Rui Falcao, has publicly
called on the bank not to resume rate hikes that could further
sink an economy expected to contract 3 percent this year.
Economists believe the economy contracted 4 percent in 2015.    
    Most Brazilians have lived through waves of hyperinflation
until the creation of the real currency in 1994. At 14.25
percent, the Brazilian central bank benchmark Selic rate is the
highest among major global economies. 
    Although the current price spike is not nearly as severe as
previous episodes of runaway inflation, it has helped erode the
popularity of Rousseff struggling with a massive corruption
scandal involving dozens of lawmakers from her Workers' Party
and allied parties.
    Brazil's inflation is set against a backdrop of deflation
fears elsewhere in the world, caused by slowing Chinese growth
and falling oil and commodities prices. Most of Brazil's price
pressures are homegrown, underpinned by loose fiscal policy and
successive increases in the minimum wage regardless of
productivity gains.
    Finance Minister Nelson Barbosa said in a separate note that
his ministry will help the central bank by rebalancing the
fiscal accounts and increasing the productivity of the economy. 
    Barbosa, a leftist economist who replaced fiscal hawk
Joaquim Levy as finance minister in December, is trying to
convince skeptic investors that he will not relax the unpopular
austerity drive.    
    Economists expect Brazil's inflation rate to peak in a few
months and close the year at just below 7 percent, still above
the government's target, according to a central bank poll.
    Prices rose 0.96 percent in December, slightly
below market forecasts in a Reuters poll.
    
    Below is the result for each price category: 
                            December  November
 - Food and beverages       1.50      1.83    
                                      
 - Housing                  0.49      0.76    
                                      
 - Household articles       0.46      0.31    
                                      
 - Apparel                  1.15      0.79    
                                      
 - Transport                1.36      1.08    
                                      
 - Health and personal      0.70      0.64    
 care                                 
 - Personal expenses        0.57      0.52    
                                      
 - Education                0.22      0.22    
                                      
 - Communication            0.43      1.03    
                                      
 - IPCA                     0.96      1.01    
                                      
 
 (Reporting by Alonso Soto and Silvio Cascione; Editing by
Bernadette Baum, Bernard Orr)