Brazil’s unemployment rate fell in April to the lowest level on record for the month, keeping pressure on policy makers trying to cool demand fueled by full- employment conditions.
Joblessness in April fell to 6.4 percent from 6.5 percent in March, the national statistics agency said today in Rio de Janeiro, matching the median forecast of 31 analysts surveyed by Bloomberg.
Low unemployment is stoking consumer demand and adding to skepticism that policy makers in Latin America’s biggest economy will succeed in cooling inflation to the 4.5 percent mid-point of the government’s target range by 2012. Consumer prices rose 6.51 percent through mid-May, above the upper limit of the annual range for the first time since 2005.
“You can see that the labor market is very heated,” Roberto Padovani, chief economist at Banco WestLB do Brasil SA, said in an interview from Sao Paulo. Unemployment is running below its natural rate of 6.5 percent, which is generating inflationary pressure, he added.
Brazil generated 272,225 registered jobs in April, the second-most since September and up from a revised 102,758 jobs created in March. Brazil will create 3 million jobs this year, Labor Minister Carlos Lupi said May 17.
The fastest economic growth in two decades last year and rising salaries is prompting financial and retail companies to expand and hire more workers in Brazil.
The Bank of New York Mellon Corp.’s local unit aims to boost staffing by more than 20 percent in 2011, while Zurich- based UBS AG plans to more than double its workforce in Brazil to 550 people by year-end 2012. Wal-Mart Stores Inc. (WMT), the world’s largest retailer, plans to invest 1.2 billion reais ($737 million) in Brazil this year and hire 7,000 people.
Even though the labor market remains tight, a slowdown in wage growth may help the central bank, said Gustavo Rangel, chief Brazil economist for ING Financial Markets in New York. Average real wages fell 1.8 percent in April from March, to 1,540 reais ($949) per month.
“This bodes well for the bank’s outlook for less demand pressure,” Rangel said in a telephone interview from New York. “Salaries and credit are the two main drivers for demand.”
The yield on the interest rate futures contract maturing in January 2013, the most traded in Sao Paulo today, fell 2 basis points, or 0.02 percentage point, to 12.57 percent at 10:15 a.m. New York time. The real strengthened 0.3 percent to 1.6237 per U.S. dollar.
To slow inflation, President Dilma Rousseff’s administration is relying on a mix of higher interest rates, spending cuts and measures to curb credit growth to cool the economy. Policy makers will push the overnight Selic rate up 50 basis points to 12.50 percent by year end, according to a central bank survey of about 100 economists published May 23.
Padovani forecasts that policy makers will raise borrowing costs by 0.25 percentage point at their June and July meetings, then hold the rate at 12.5 percent for 18 months.
Economists surveyed by the central bank raised their 2012 inflation forecast to 5.1 percent, from 5 percent, according to the median forecast in a central bank survey of about 100 economists published May 23.
Carlos Hamilton, the central bank’s director for economic policy, last week said that Brazil’s labor market is tight, with parts of the country at full employment for the first time in decades. The economy will need to slow more for inflation to cool to 4.5 percent next year, Hamilton said.
Unemployment fell to the lowest for the month of April since the statistics agency changed its methodology and began tracking joblessness in Brazil’s six-biggest metropolitan areas in 2002. In April 2010, the rate stood at 7.3 percent. While the government has pledged to freeze hiring as part of its austerity drive, Rousseff is pushing policies that aim to create manufacturing jobs such as possibly purchasing tablet computers for public schools.
The government may scrap a 20 percent payroll tax to help boost job creation, replacing it with a sales tax that would vary by industry, said Congressman Paulinho da Forca.
Paulinho, who discussed the tax proposal with Finance Minister Guido Mantega yesterday, is also head of the nation’s second-biggest union.