Higher-than-expected inflation prompts another downgrade of Brazilian growth

Brazilian bank Itau BBA has become the latest bank to cut Brazil’s growth forecast after reports that inflation rose at by more than expected – generating further speculation the central bank will increase the pace of increase in borrowing costs.

The IPCA-15 consumer price index rose at a monthly rate of 0.16 per cent and an annual rate of 6.15 per cent. The Brazilian real has fallen 15 per cent in the last three months – more than any other major emerging market currencies against the dollar, which has made it difficult for the government to curb inflation while supporting growth.

Itau cut Brazil’s full year 2013 gross domestic product (GDP) forecast to 2.1 per cent from 2.3 per cent. It also envisions a more drastic slowdown next year, cutting the 2014 GDP forecast to 1.7 per cent from 2.2 per cent.

Last week, JP Morgan drastically revised its forecast for Brazil’s third quarter GDP from 1.5 per cent to just 0.3 per cent after a slower-than-expected second quarter recovery. The bank expects 2.0 per cent growth over the full year. Weak economic indicators and uncertainty over the October 2014 elections led them to downgrade 2014 growth estimates to 2.4 per cent from 2.7 per cent.

They join economists surveyed by the country’s central bank (2013 growth revised to 2.2 per cent from 2.5 per cent) and Citibank (2013 growth down to 2.1 per cent from 2.2 per cent and 2014 growth to 2.0 per cent from 2.4 per cent).