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Brazil Inflation Accelerated in November as Demand From China Pushed Beef Prices Higher

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12/06/2019 | 07:38am EST

By Jeffrey T. Lewis

SAO PAULO--Brazil's consumer prices rose in November as the price of food increased amid strong demand in China for Brazilian beef.

Consumer prices rose 0.51% in November and increased 3.27% from a year earlier, the Brazilian Institute of Geography and Statistics, or IBGE, said Friday. In October prices rose 0.1% in the month and advanced 2.54% from a year earlier.

The pace of food price increases should continue to pick up in December amid a seasonal increase in demand. The outbreak of African swine fever that has decimated China's pork supplies should mean continued strong demand for beef imports from Brazil, adding further pressure to prices in the South American country.

Even with the rise in Brazil's 12-month inflation rate, the pace of price increases is still below the Central Bank of Brazil's target of 4.25% for 2019. The bank signalled at its most recent monetary policy meeting that it would cut its benchmark interest rate, the Selic, once more by half a point at its final meeting this year, which would leave the rate at a record low 4.5%.

A cut at the next meeting, which takes place next week, will likely be the last one of the current cycle, according to Carlos Pedroso, senior economist at Banco MUFG Brasil in Sao Paulo. The bank is likely to wait to see the effects of the current low rates, and with Brazil's economy showing signs of picking up, policy makers will probably begin raising the Selic again in the second half of next year, he said.

"It's not about inflation, which is under control despite the more rapid increases we expect in November and December," said Mr. Pedroso, who expects the Selic to reach 5.5% by the end of next year.

The price of food in Brazil rose 0.72% in November, after rising 0.05% in October, with the cost of meat jumping 8.09% in the month. Another big contributor to the faster inflation was the price of housing, which increased 0.71% in November after a decline of 0.61% in October.

The increase in the price of housing was influenced by a rise in the price of electricity in the month. Scant rains in October left the dams behind the country's many hydroelectric plants with low levels of water, forcing power companies to fire up more expensive conventional plants and to raise rates. With more rain in November, the price of electricity will come down again in December, Mr. Pedroso said. The price of electricity increase 2.15% in the month, IBGE said.

Write to Jeffrey T. Lewis at jeffrey.lewis@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
EURO / BRAZILIAN REAL (EUR/BRL) 0.07% 4.6095 Delayed Quote.2.98%
FEEDER CATTLE?FUTURES (GF) - CMG (ELECTRONIC)/C1 0.07% 142.875 End-of-day quote.-1.75%
LIVE CATTLE (LE) - CMG (ELECTRONIC)/C1 0.18% 124.9 End-of-day quote.1.18%
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