PREVIEW-Brazil inflation seen up slightly in August

WHAT: Brazil’s August IPCA consumer price index

WHEN: Thursday, Sept. 9, at 9 a.m. local time (1200 GMT)

REUTERS FORECAST: Brazil’s benchmark inflation index should
show consumer prices rising slightly in August.

The median forecast of 12 analysts pointed to an increase
of 0.09 percent in the IPCA inflation index (BRCPI=ECI: ), with
projections ranging from 0.04 percent to 0.13 percent. The
index rose 0.01 percent in July.

FACTORS TO WATCH: The index showed shrinking price
pressures in the month to mid-August after being broadly flat
in July for a second straight month. Twelve-month inflation
slowed to 4.44 percent to mid-August, below the center of the
government’s 2010 target of 4.5 percent, plus or minus 2
percentage points.

Inflation expectations have also remained benign, with
analysts in the latest weekly central bank survey keeping their
expectations for inflation this year steady at 5.07 percent,
the same as the previous week, after cutting estimates in the
two previous weeks.

The central bank last week decided to keep interest rates
on hold at 10.75 percent, saying it saw continued reduction of
risks for the inflation outlook. See [ID:nN01111893].

But data since the rate decision showed Latin America’s
largest economy grew more than expected in the second quarter.
That could prompt analysts to raise their estimates for
expansion this year further, on top of sharp upward revisions
this week for 2010 growth forecasts to 7.34 percent from 7.09
percent in the central bank’s survey.

Expectations for a slight rise in the IPCA inflation index
comes on the back of smaller declines in food prices and more
inflationary pressure from health and communications sectors,
BNP Paribas said in a recent research note.

MARKET IMPACT: A stronger than expected inflation index
could reinforce the view of those in the market that expect the
central bank will resume monetary tightening next year.

Data last week showed Latin America’s largest economy grew
1.2 percent in the second quarter, above expectations for 0.7
percent expansion. At 8.8 percent, the annual figure was not
far off the 9 percent growth of the first quarter which had
sparked fears of overheating.

Stronger than expected inflation data could push yields on
interest rate future contracts (0#DIJ:: ) higher, after having
tumbled in recent weeks on the back of dovish central bank
comments and as the monetary authority slowed rate tightening
to a halt. Before the decision to keep borrowing costs on hold
in September, the central bank hiked interest rates by less
than expected in July.

(Reporting by Daniela Machado; Writing by Ana Nicolaci da
Costa, Editing by Chizu Nomiyama)

PREVIEW-Brazil inflation seen up slightly in August