Brazil job market still tight, feeds inflation fears

Economy adds more than 90,000 jobs in March, unemployment sitting at 6.5 per cent
By Luciana Lopez and Ana Nicolaci da Costa
||Last Updated: 04/20/2011

SAO PAULO/BRASILIA (Reuters) — Brazil's tight labour market gave few signs of easing in March, adding to worries government efforts to restrain rising consumer prices might not be enough.

Latin America's largest economy created 92,675 net payroll jobs in March — about one-third the February figure — according to Labor Ministry data released Tuesday.

But the period included Carnaval, when the country virtually stopped for several days. Indeed, the jobless rate for the month came in well below forecast at 6.5 per cent. The data from government statistics agency IBGE Tuesday was lower than all 12 forecasts in a Reuters poll and nearly unchanged from the 6.4 per cent rate in February.

``The labor market is reinforcing inflation fears,'' said Thais Marzola Zara, chief economist of Rosenberg e Associados consultancy in Sao Paulo.

Employers often pay higher wages in tight labor markets, especially for workers with special skills. Higher salaries translate into more consumer spending — potentially pushing inflation above the government ceiling.

``I don't see any slowdown in the Brazilian labor market,'' Labour Minister Carlos Lupi said at a news conference. ``The market is going to continue growing briskly.''

Zara said she expects that the government's target inflation ceiling ``will certainly'' break this year, ``and it's possible that could happen as soon as April.''

The central bank is targeting inflation of 4.5 per cent plus or minus two percentage points this year. Already, 12-month inflation sped to 6.3 per cent through March, and a growing number of economists see the benchmark IPCA consumer price index breaching 6.5 per cent in coming months.

Ideally, the government would clamp down on credit through monetary and fiscal policy — higher interest rates and budget-cutting, Zara said, as well as other measures like making banks lend out less money.

``There's talk about that, but for now we don't have any proof of major tightening in the two (policy) sides,'' she said.

The central bank has raised its benchmark interest rate a cumulative one percentage point to 11.75 per cent so far this year but is reluctant to hike further. Raising the Selic would fuel a currency rally that has already dragged on industry and boosted cheap imports.

The government recently hinted it could let the currency strengthen more as inflation fears grow, allowing the real to firm below the 1.60-per-dollar level that analysts long considered an unofficial floor.

Policymakers meet on Wednesday to considering raising the Selic rate. Most analysts in a Reuters poll saw the bank raising the rate to 12.25 per cent, although a significant minority saw the rate at 12 per cent.

By the numbers

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