Brazil's seasonally adjusted economic activity index--a proxy for GDP--fell 0.11% in March from February, according to central bank report, as above-target inflation curbed demand

BRASILIA, Brazil , May 16, 2014 () – Brazil’s economic activity contracted in March for the first time this year as above target inflation curbs demand.

The seasonally-adjusted economic activity index, a proxy for gross domestic product, fell 0.11 percent from the prior month, after growing a revised 0.02 percent in February, the central bank said today in a report posted on its website. The median estimate of 27 economists surveyed by Bloomberg was for a 0.1 percent contraction.

President Dilma Rousseff’s administration has struggled to boost economic growth in the world’s second-largest emerging market. Quickening inflation has curbed purchasing power and prompted the central bank to lift the key rate in nine straight meetings.

Policy makers will keep borrowing costs unchanged at 11 percent when they meet on May 28 in an effort to prevent a further slowdown in the economy, even as inflation remains above the 4.5 percent target, swap rates show.

Retail sales and industrial production in March contracted as policy makers pledge to reign in stimulus measures this year to strengthen fiscal accounts. Retail sales declined the most since May 2012 on a drop in billings at supermarkets. Industrial production contracted by 0.5 percent.

Rating Downgrade

Finance Minister Guido Mantega said Feb. 21 that Brazil would raise taxes this year as it cuts spending to meet fiscal targets. Standard & Poor’s in March downgraded Brazil’s credit rating to one level above junk, citing the deterioration of fiscal policy and limited ability to adjust before elections.

Since April 2013, Brazil’s central bank has raised the benchmark Selic by 375 basis points from a record low to 11 percent. The effects of monetary policy appear with delay, central bank Director Luiz Awazu Pereira said in Paris on May 13.

Consumer prices in April increased 0.67 percent from the the month before after surging 0.92 percent in March. Annual inflation quickened to 6.28 percent in April, the fastest in 10 months.

--With assistance from Ainhoa Goyeneche in Washington.

To contact the reporter on this story: Matthew Malinowski in Brasilia at To contact the editors responsible for this story: Andre Soliani at Randall Woods

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