Brazil Inflation Rose as Fastest Pace Since 2004

Brazil’s consumer prices rose more than economists expected in December, pushing last year’s inflation rate to the highest since 2004.

Consumer prices, as measured by the benchmark IPCA index, rose 0.63 percent in December, more than the 0.6 percent median forecast in a Bloomberg survey of 27 analysts. Prices rose 5.91 percent last year, the fastest annual pace since a 7.6 percent jump in 2004, the national statistics agency said.

The central bank targets inflation of 4.5 percent, plus or minus two percentage points.

In the overnight interest-rate futures market, the yield on the contract due in January 2012 rose three basis points, or 0.03 percentage point, to 12.13 percent at 6:13 a.m. New York time. The real fell 0.1 percent to 1.6882 per U.S. dollar.

Traders are betting that central bank President Alexandre Tombini will raise borrowing costs by 0.5 percentage point when he chairs his first policy meeting this month, according to Bloomberg estimates based on interest rate futures contracts.

Brazil’s inflation risk has evolved “unfavorably,” the central bank said in its quarterly inflation report, published Dec. 22. Policy makers raised their 2011 inflation forecast to 5 percent, up from 4.6 percent in September, according to the so- called reference scenario, which assumes interest rates remain unchanged. The projection suggests the need for an adjustment in interest rates in the “short-term,” the report said.

Slowing Since November

Inflation last month slowed from a 0.83 percent increase in November. Food prices jumped 1.32 percent last month, and 10.4 percent in 2010, leading all other categories.

Policy makers kept the benchmark Selic rate unchanged at 10.75 percent at their last three policy meetings, after raising it by 2 percentage points from a record low 8.75 percent during 2010.

In her first speech as President of Brazil on Jan. 1, Dilma Rousseff pledged to guard the nation from the “plague” of inflation.

Higher interest rates are attracting capital inflows that have pushed the real to a two-year high this month. The real has risen 38 percent since the start of 2009, the second-best performer among 16 major currencies tracked by Bloomberg after the Australian dollar.

To contact the reporter on this story: Matthew Bristow in Brasilia at mbristow5@bloomberg.net; Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net

To contact the editors responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net