1

Pine Economic Calendar: High speed monetary policy September 03, 2012

BRAZIL

Industrial Production - July

Our estimates indicate that industrial activity in July must have reached 0.5% over the month

(in seasonally-adjusted terms), its second consecutive rise. As a result, if we were right in our

projections, the three-month moving average would move from -0.4% in June to -0.10% in

July. We expect an annual comparison to show a fall of 2.5%, above the level of June (-3.5%).

Industrial production – well below its trend

Source: IBGE; production: Pine Research

Our estimate is based on the following leading indicators:

1. Increases of 0.3% in the activity level indicator (local acronym INA) of the São

Paulo trade federation, FIESP, for July as well as June;

2. According to a sharp increase in the production of vehicles and light commercial

vehicles, buses, trucks and farm machinery, according to the manufacturers’

trade association, ANFAVEA (+3.8% in June and +3.6% in July);

3. The paper industry trade organization, ABPO, says there was no variation in the

distribution of boxes, accessories and cardboard trays in July following the

decline of 0.6% the previous month;

4. New increase of 2.2% in the production of crude steel, according to the Brazilian

Steel Institute, the IAB;

5. On the other hand, the industrial confidence index will start to deteriorate again

in July, according to the FGV business school, as did average energy consumption,

as shown in the figures from the system operator, the ONS, and oil and natural

gas production by Petrobras.

90

95

100

105

110

115

120

125

130

135

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

média 2002=100

Produção Industrial

2

IPCA - August

The August index shall rise by 0.38%, slightly below the variation in July (0.43%) and in line

with the respective Amplified Consumer Price Index IPCA-15 (0.39%). If our estimate is

confirmed, the IPCA index accumulated over 12 months will remain at 5.2%, the same level as

the previous month.

“Food consumed at home” should be lower than in July, with some easing in

perishable food.

“Industrial Goods” shall return to positive territory, with a lower effect from the

reduction of the IPI tax; in any case, the core variations will remain contained during

the sales period in the ‘Clothing’ segment.

“Controlled Prices” are still feeling some pressure from the readjustment in the price

of diesel although offset by reductions in energy prices.

“Services” will show some improvement, with more moderate variations in the wages

of domestic employees.

By the end of the year, we expect some acceleration in the monthly measures (between

0.35% and 0.55%). The consumer price indices should feel some negative influence (in terms

of higher inflation) from the worsening in producer prices. However, this will not lead to any

increase in base interest rates as long as the weak outlook for world growth remains.

Monthly IPCA noted and projected – above its recent average

Source: IBGE; production: Pine Research

IGP – DI - August

The IGP-DI index in August shall fall from 1.52% in July to 1.23%, slowing in relation to the

IGP-10 (1.59%) and IGP-M (1.43%). In fact, as we have argued in recent calendars, our

estimates indicate that the IGP-10 peaked in its latest monthly rise.

The recent performance comes as a result of higher wholesale inflation, with the supply

shock from soybeans and some perishable foods, although this has begun to lose force (see

following graph). The INCC construction cost index is continuing to ease whereas the IPC,

announced this morning, showed a variation above 0.40% once again.

0.00%

0.10%

0.20%

0.30%

0.40%

0.50%

0.60%

1 2 3 4 5 6 7 8 9

10

11

12

IPCA médio (desde 2005) 2012

3

Wholesale agricultural prices (% m/m)

Source: CEPEA; production: Pine Research

COPOM Minute

The COPOM decision to reduce the Selic rate by 50 basis points to 7.50% p.a. came as no

surprise. The statement issued after the decision announced the change in the language we

had expected and reduced the chances of any new cut of this size at the October meeting:

“Considering the cumulative and lagged effects of policy actions implemented until the

moment, which in part reflect in the ongoing recovery of economic activity, the Copom

understands that, if the prospective scenario justifies an additional adjustment in the

monetary conditions, this movement should be conducted with extreme parsimony.”

The “extreme parsimony” would be a reduction of 25 bp, which, as the above text indicates,

would only come about from a slackening of the domestic recovery and/or of a new

deterioration on the international front. We believe the Copom’s initial option is to maintain

the Selic at 7.50% at the next meeting, with 7.25% as an alternative possibility.

The minutes to be published this Thursday will clarify this “order” of scenarios and explain

the committee’s declarations on the effects of the policies adopted to date: how comfortable

is the Copom with the “contracted” recovery of domestic activity? At the same time, the rise

in commodity prices highlighted above means we will pay special attention to the balance of

inflationary risks.

Marco Antonio Maciel Chief economist Banco Pine

Marco Antonio Caruso Economist Banco Pine

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

jan/12

fev/

12

mar/

12

abr/

12

mai/

12

jun/12

jul/

12

ago/12

Modelo Pine IPA Agrícola

2

Time Country Indicator Date PINE

Estimate

Consensus Previous

Monday, 09/10/2012

Euro Zone Investor Confidence Sep/12

Brazil IPC-S (first four weeks) Sep/12

Brazil Weekly Trade Balance 09/Sep

USA Consumer Credit Jul/12

Tuesday, 09/11/2012

Brazil IGP-M (first preview) Sep/12

USA Trade Balance Jul/12

Brazil Consumer Credit Demand Indicator Aug/12

Wednesday 09/12/2012

Euro Zone Announcement of banking

supervision proposal

-

Euro Zone German Court judges participation

in the ESM

-

Brazil IPC-S (first four weeks) Sep/12

Euro Zone Industrial Production -

USA Mortgage Applications (weekly) 07/Sep

Brazil PIM: Employment and Wages Jul/12

- World Agriculture Supply and

Demand (estimate)

-

USA Export/Import prices Aug/12

USA Wholesale inventories Jul/12

Thursday 09/13/2012

- Leading indicators Jul/12

Brazil PMC: Retail Sales Jul/12

Brazil PMC: Retail Sales Jul/12

USA PPI: Producer Price (% m/m) Aug/12

USA PPI: Producer Price (% y/y) Aug/12

USA PPI: Core Aug/12

USA Jobless Claims 08/Sep

USA FOMC meeting -

USA Monthly Fiscal Result Aug/12

USA B. Bernanke press conference -

Friday 09/14/2012

Euro Zone Consumer Prices Aug/12

Euro Zone Meeting of Euro Zone Finance

Ministers

-

USA CPI: Consumer Prices (% m/m) Aug/12

USA CPI: Consumer Prices (% y/y) Aug/12

USA CPI: Core Aug/12

USA Retail Sales Aug/12

USA Industrial Production Aug/12

USA Use of Installed Capacity Aug/12

USA Consumer Confidence

(preliminary)

Sep/12

USA Corporate Inventories Jul/12

Brazil A. Tombini takes part in a public

hearing at the Senate

-

Brazil IBC-Br (% m/m) Jul/12

Brazil IBC-Br (% y/y) Jul/12

Euro Zone Announcement of budget cuts in

Greece

-

1

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