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Brazil's Unemployment Falls, Monthly Wages Jump in August

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09/26/2013 | 08:35am EDT

RIO DE JANEIRO--Brazil's unemployment rate fell unexpectedly in August while average salaries advanced, indicating that Latin America's largest economy still faces persistent price pressures.

Unemployment in Brazil's six-biggest cities was 5.3% in August compared with 5.6% in July, the Brazilian Institute of Geography and Statistics, or IBGE, said Thursday. The unemployment rate in August 2012 was also 5.3%. August's unemployment rate was less than the 5.6% median estimate of economists polled by the local Estado news agency.

The second-consecutive monthly decline in Brazil's unemployment rate is a bad omen for the central bank's fight against inflation. Tight labor markets have been a key force behind higher prices, keeping consumer prices hovering close to the 6.5% ceiling of the Brazilian Central Bank's target range. In the 12 months through mid-September, Brazil's consumer price index rose 5.93%. The central bank has responded to higher prices with a series of interest rate hikes, boosting domestic interest rates to 9.0%.

Brazil's unemployment rate remains at historically low levels and below the rate economists consider neutral for inflation, causing salaries to climb as companies pay more to hire and retain workers and pass along higher prices for everything from haircuts to car repairs to consumers.

Wages trended higher in August after retreating earlier this year, the IBGE said. Average month salaries rose 1.7% from July to 1,883.00 Brazilian reais ($840.63). Monthly salaries were also 1.3% higher when compared with August 2012.

The downturn in unemployment could help boost the fortunes of President Dilma Rousseff, who had seen her approval ratings take a dive after nationwide protests against rising prices, government corruption and poor public services. Unemployment had also been on the upswing in the first half of 2013.

The IBGE measures unemployment in six of Brazil's largest metropolitan areas, including Sao Paulo, Rio de Janeiro, Salvador, Belo Horizonte, Recife and Porto Alegre.

Brazil ended 2012 with a record-low average unemployment rate of 5.5%, down from 6.0% in 2011.

Write to Jeff Fick at jeff.fick@wsj.com

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