Oil fuels higher Brazil inflation, rate hike seen
Brazil's main inflation index rose more sharply in October than in September, raising the likelihood the central bank will soon increase interest rates to stabilize prices.
The benchmark IPCA inflation index rose 0.44 percent in October, more than 0.33 percent in September, the government said on Thursday.
The result was slightly higher than the 0.42 percent average forecast in a Reuters survey of 10 economists."The IPCA confirmed expectations about rising fuel prices and core inflation running above inflation targets," Marcelo Carvalho, chief economist at ING in Sao Paulo, said.
"This result demonstrates that there will be continued monetary tightening."Even though food prices fell for the second straight month, prices rose in October primarily because of rising fuel prices, which have been pressured by surging global crude oil and domestic ethanol costs.
Gasoline price hikes caused the latest IPCA reading to rise 0.06 percentage points following a 1.45 percent hike at refineries. Ethanol prices also pushed the index 0.05 percentage points higher after distillers raised prices, causing retail prices to rise 5.31 percent.
Ethanol distilled from sugar cane comprises 25 percent of Brazilian gasoline. Also, many cars here run on pure ethanol, which costs about half as much as gasoline. Brazil is the world's leading sugarcane grower.
The IPCA index, calculated by the government's IBGE statistics institute, is used by the central bank as a guide when setting interest rates. Excluding some extraordinary items, economists said so-called core inflation rose 0.60 percent in October.
Brazil's central bank is widely expected to hike its key Selic interest rate, currently at 16.75 percent a year, by at least a quarter of a percentage point at the close of its upcoming monthly two-day monetary policy meeting which ends next Wednesday.
The hike would aim to lower inflation to the central bank's 5.1 percent IPCA target for next year, which is tighter than this year's 5.5 percent target.
The IPCA rose 5.95 percent in the first 10 months of the year. In the 12-month period ending in October, the index rose 6.86 percent.
(From Reuters, November 11, 2004)
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