PREVIEW-Brazil inflation seen rising in Oct on food

WHAT: Brazil’s October IPCA consumer price index

WHEN: Tuesday, Nov. 9, at 9 a.m. (1100 GMT)

REUTERS FORECAST: Brazil’s benchmark IPCA consumer price
index (BRCPI=ECI: ) is seen rising 0.7 percent in October,
according to the median forecast of 19 economists, from a 0.45
percent increase in September. Estimates ranged between rises
of 0.61 percent and 0.71 percent.

FACTORS TO WATCH:

Inflation is expected to surge, mainly due to a rise in the
price of transport and food.

The rise in food prices is likely to continue in the
short-term as demand for certain types of food increase due to
the holiday season and end-of year celebrations.

The key is to gauge whether the pick-up in price pressures
is spreading to other parts of Latin America’s largest
economy.

The benchmark IPCA consumer price index grew more quickly
than expected in the month to mid-October. But industrial
production fell more than projected in September and the
economy created fewer jobs that month than Labor Minister
Carlos Lupi had forecast.

The recent data reinforced the view that Brazil’s economy
is settling into a more sustainable growth path in the second
half of the year, after expanding at near Chinese growth rates
in the first six months of 2010.

MARKET IMPACT

Signs that price pressures are indeed picking up could fuel
the view the central bank may be falling behind the curve — or
that it is taking too long to raise borrowing costs to contain
price pressures.

The central bank has kept a benign inflation outlook even
as price pressures and inflation expectations are rising.

Consumer prices rose 5.03 percent in the 12 months to
mid-October, above the center of a government target of 4.5
percent, plus or minus 2 percentage points. Analysts in a
weekly central bank survey expect inflation to end the year at
5.29 percent.

In minutes from its latest monetary policy meeting, the
central bank said recent data pointed to an improved balance of
risks for government administered prices but that it is ready
to change monetary policy quickly if pressures on consumer
prices increase.

If the upcoming data shows this is the case, investors may
have to change their forecasts for interest rates. The bank
took out references to lower inflation risks in the statement
that accompanied its latest rate decision.

Analysts in the weekly central bank survey expect the
central bank to raise borrowing costs only next year from 10.75
percent currently.
(Reporting by Vanessa Stelzer; Writing by Ana Nicolaci da
Costa; Editing by Dan Grebler)

PREVIEW-Brazil inflation seen rising in Oct on food