Brazil inflation defies easing trend in Latin America

MEXICO CITY/BRASILIA Sat Dec 8, 2012 12:54am IST

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MEXICO CITY/BRASILIA (Reuters) - Inflation in Brazil accelerated unexpectedly in November, defying a regional trend toward lower price pressures as the impact of a mid-year food price spike fades.

Inflation in Brazil, Latin America's biggest economy, picked up to 5.53 percent in the 12 months through November, topping forecasts for a slight dip and up from a 5.45 percent rate in the 12 months through October.

The jump highlights the risks Brazil's central bank faces in trying to shore up disappointingly slow growth. It targets inflation of 4.5 percent, with a 2 percentage point tolerance zone on each side, and has already slashed benchmark credit costs to a record low 7.25 percent.

Mexico and Chile on Friday both reported that annual inflation rates had eased, matching declines recorded earlier for Colombia and Peru and lessening pressure on those countries' central banks.

"Pretty much across the board you've seen food knock quite a chunk off inflation, particularly in the Andean countries," said Capital Markets economist Michael Henderson.

"The other central banks don't have the problem of slowing growth that Brazil has had .... so they are toeing the line between a pretty healthy inflation picture and fairly steady growth."

Brazil's president, Dilma Rousseff, downplayed concerns about inflation, saying prices are under control. She also told journalists she had no intention of firing Finance Minister Guido Mantega, who has been heavily criticized after aggressive government intervention failed to spur faster growth in the world's sixth-largest economy.

Economists generally see steady interest rates in the short term in major Latin American economies, with inflation either within the central banks' target ranges or headed that way.

Brazil's 0.6 percent month-on-month rise in consumer prices was driven by increases in the cost of transportation as well as electricity, which was also a factor in Mexico as seasonal summer power subsidies were removed.

In Mexico, a drop in fresh food prices trimmed annual inflation to a lower-than-expected 4.18 percent, from 4.6 percent in October and on track to meet the central bank's forecast of a fall below its 4 percent ceiling by year-end.

The decline bolstered expectations that the central bank, Banco de Mexico, will keep interest rates on hold at 4.5 percent, after it threatened hikes to rein in inflation, which peaked at a 2-1/2-year high in September.

In Chile, inflation eased to 2.1 percent in the 12 months through November, after a surprise 0.5 percent fall in prices during the month, the steepest monthly decline in three years and well below the central bank's 3 percent target. Inflation in the 12 months through October was 2.9 percent.

Chile has kept interest rates at 5 percent since January, and Finance Minister Felipe Larrain said the drop in inflation "allows for more tranquility in terms of monetary policy."

Colombian inflation eased to 2.77 percent in November, from 3.06 percent in October, below analysts' expectations and below the midpoint of the central bank's annual inflation target range of 2 percent to 4 percent.

At its last monetary policy meeting, Colombia's central bank unexpectedly cut its benchmark interest rate a quarter point to 4.5 percent given an expected slowdown in the economy as global risks weigh on the nation's manufacturing and exports.

In Peru, inflation in metropolitan Lima in the 12 months through November eased to 2.66 percent, inside the central bank's 1 percent to 3 percent target range and from 3.25 percent in October. Peru has kept benchmark interest rates unchanged at 4.25 percent for more than a year.

(Reporting by Silvio Cascione, Hugo Bachega, Alexandra Alper and Anthony Esposito; Writing by Krista Hughes; Editing by Andrew Hay and Leslie Adler)

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