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WRAPUP 1-Data point to nagging worries in Brazil, Mexico

Published 03/24/2011, 03:50 PM
Updated 03/24/2011, 03:52 PM
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* Brazil Feb. unemployment at 6.4 pct from 6.1 pct in Jan.

* Mexico Feb. jobless rolls at 5.38 pct from 5.43 pct Jan

* Mexico annual inflation slows in first half of March

By Luciana Lopez

SAO PAULO, March 24 (Reuters) - Latin America's two biggest economies still have a way to go before policymakers can feel comfortable.

While some data point to a cooling in Brazil's economy from its surge last year, economists say the tight labor market and high consumer prices could keep pressure on the central bank to raise interest rates yet more this year.

In contrast, Mexico's economy, a regional underperformer, is picking up, but the data remain choppy and the extension of a recovery for the domestic market uncertain.

"There's an important path to be trod," said Zeina Latif, an economist at RBS in Sao Paulo. "The economic cycles of these two countries, they're at different places."

Brazil's February unemployment rate rose to 6.4 percent from 6.1 percent in January, data showed on Thursday. But because of seasonal effects and strong job creation, economists said, the headline drop does not help the central bank much.

"The labor market is not improving," said Alberto Ramos, an economist with Goldman Sachs.


Regional unemployment rates: http://r.reuters.com/dex68r


A more neutral jobless rate for Latin America's biggest economy would be closer to 7 or 7.5 percent, he said.

The tight job market has been a major driver for the benchmark IPCA consumer price index, boosting salaries for in-demand workers. The IPCA ended last year at 5.91 percent -- well above the central bank's target of 4.5 percent, plus or minus 2 percentage points.

Since then, 12-month inflation has sped even higher, reaching 6.13 percent through mid-March, according to data released on Wednesday.

The central bank has hiked its benchmark lending rate to 11.75 percent from an original 10.75 percent in January, keeping Brazil's interest rates among the world's highest.

But annual inflation could still breach the upper end of the target range this year, some economists say.

MEXICAN ECONOMY FLIPPED

Mexico finds itself in a different position: Unemployment fell slightly in February, and annual inflation slowed, data showed on Thursday.

The country's recovery has been largely export-driven, relying on the U.S. economy, and the domestic market has yet to rebound in the same manner.

The 5.38 percent unemployment rate in February means there is still significant slack in the economy, Ramos said.

Unemployment rates before September 2008 and the onset of the global economic crisis were around a percentage point lower.

Thus Mexico's central bank might not need to raise interest rates until the first quarter of next year, said Benito Berber, an economist with Nomura Securities.

But markets see otherwise, he noted, with investors pricing in 80 to 90 basis points of hikes this year.

"We're seeing two different movies," he said. (Editing by Dan Grebler)

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