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Brazil inflation to slow in Oct.

10-11-2011 09:32 BJT

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Brazil inflation to start slowing in Oct - Tombini

Brazil's inflation will begin to slow in October, central bank chief Alexandre Tombini told a newspaper two days after official data disproved his previous forecast that rising prices would start slowing last month.

Annualized inflation was 7.31 percent in September, a new six-year high and well above the central bank's limit of 6.5 percent, the government's IPCA index showed on Friday.

Prices rose 0.53 percent in September from August due to a sharp rise in fuel prices. Tombini had been saying a few months ago he expected inflation would peak in August.

Economists are concerned that his dovish expectations may be premature.

"In no way (will prices continue to accelerate)," Tombini told the Folha de S.Paulo newspaper published on Sunday.

"Our horizon is December 2012 but in October 12-month inflation will begin to fall by 0.30 percentage points."

The central bank expects to meet its 4.5 percent inflation target by December of 2012, Tombini said. It has a 2-point margin on either side of the target.

Market expectations monitored by the central bank see inflation at 6.52 percent at the end of 2011, slightly above the upper limit of 6.5 percent.

"Of those countries that have inflation targets, various economies have inflation above the band or target," Tombini said.

After the Brazilian economy grew by 7.5 percent last year, the central bank raised its benchmark Selic interest rate consistently from the start of this year to 12.5 percent.

But in August, the bank surprised markets in the current inflationary climate with its decision to cut the Selic rate by 50 basis points to 12 percent. The bank said the effects of the European debt crisis and a fragile U.S. economy would have a chilling effect on local demand.

"Since the start of the year, our flight plan ... was to moderate the growth of the Brazilian economy," Tombini said.

"There were signs, clearer every day, that this slowdown was happening. We also said that monetary policy would have a delayed effect and that in the second half of the year these policies would be more strongly felt."

Tombini said the central bank's daily soundings were showing month-to-month inflation would come in at around 0.30 to 0.40 percent in October, well below the 0.75 percent on October 2010 and below this September.

This slowing trend would also hold through the end of the year, Tombini said.

Editor:James |Source: CNTV

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