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Higher than Expected Inflation in Brazil

January 23, 2013

IPCA-15 consumer inflation preview came out at 0.88% in January. The main upward surprise came from service prices.

Talk of the Day


Out this morning, IPCA-15 consumer inflation preview came out at 0.88% in January, above market estimates (0.82%) and our forecast (0.84%). The main upward surprise came from service prices (particularly air tickets and leisure prices), rising 1.06% in the month (our forecast: 0.71%) and 8.5% year-over-year. High service inflation is mainly a result of a heated job market.

Regulated prices went up 0.34%, while we expected a 0.28% gain. “Food at home” prices came in lower than expectations, at 1.66% (our call: 2.12%). Core prices also climbed more than expected. The average of the three core measures rose 0.74% (our forecast: 0.63%).

Yearly inflation reached 6.02%, up from 5.84% in December’s IPCA. Today’s report also shows that the pickup in inflation has been widespread. Our diffusion index climbed to 73.7%, from 70.7% in December.

We sent out a report yesterday about the risks of energy rationing, which depends on several factors, such as rainfall, restrictions and inefficiencies in the electric power system and the perspective of energy consumption.

Our estimates suggest that both GDP growth and declining energy prices have a high impact on energy consumption. For each 1% in GDP growth, electricity consumption rises by more than 1% in all three segments (residential, industrial and commercial). For each 1% drop in prices, consumption increases from 0.17%, to 0.61%, depending on the segment. ** Full story below.

Itaú Macro Research

Europe Economic Roundup

Large demand for Spanish Debt; Portugal returning to bond markets today

Yesterday, Spain raised €7billion through a successful syndicated 10-year bond sale. Investors placed orders of almost €23bn.

Spain has raised €17billion (US$ 23 billion) worth of bonds this January, 14% of the total €121 billion planned for the year.  In January of 2012 the country also issued €17billion only to see its market access almost vanish a couple of months later. But last year foreign investors were fleeing the country and only domestic banks, which were boosted with liquidity injections from the European Central Bank (ECB), were buying Spanish bonds. This time, foreign investors are returning, and acquired 60% of yesterday’s sale.

Overall, Spanish bond sales have provided a good sign that the risks related euro crisis have receded.

Today we could get positive news from Portugal. The country is returning to the bond markets with a syndicated 5 year bond sale. This is another step in the country still difficult path to fully regain market access after being bailed out by official international lenders in 2011.

Both Portugal and Ireland, which faces a similar challenge, have signaled that they might use the ECB’s bond-buying mechanism (known as OMT) to help them during this process.

Itaú Macro Research

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