By Marcela Ayres
BRASILIA (Reuters) – Brazil released strong jobs numbers on Tuesday, reinforcing expectations of stronger economic activity early this year but keeping the central bank wary of possible impacts on inflation.
Both the unemployment rate and formal job creation figures in Latin America’s largest economy came in better than expected in their March readings, continuing a positive trend that has excited the government and unsettled policymakers.
According to statistics agency IBGE, Brazil’s unemployment rate was 7.9% in the January-March period, up slightly from 7.8% in the previous rolling quarter but still the lowest for a quarter ending March since 2014.
The latest reading was also below the 8.1% expected by analysts polled by Reuters, at a time when unemployment is seasonally higher.
At the same time, separate government data showed Brazil added a net 244,315 formal jobs in March, well above the 188,000 expected in a Reuters poll of economists.
“Today’s data suggests that we may see new adjustments to GDP growth forecasts as well as concerns about service sector inflation,” said Joao Savignon, economist at Kinitro Capital. “They continue to paint a picture of a tight labor market.”
In the first quarter, 719,033 formal jobs were created in Brazil, up 33.9% year-on-year, with the services sector leading the way, according to the government’s adjusted series.
According to Brazil’s labor ministry, average salary at hire fell slightly to 2,082 reais ($405) from 2,087 reais the previous month, but IBGE data for the full quarter showed average wages rose 1.5% sequentially.
“Real wages continue to grow at a relatively solid pace, meaning service sector inflation remains uncomfortably high,” said Andres Abadia, chief Latin America economist at Pantheon Macroeconomics.
Brazil’s central bank, which will make its next monetary policy decision next week, has stressed that it is closely monitoring income dynamics from various surveys to better assess the degree of slack in the labor market and its possible impact on service sector inflation.
One of the bank’s board members, Ailton Aquino, told reporters on Tuesday that service sector inflation was still an issue and the new jobs numbers were being taken “very seriously” by the monetary policy committee.
The central bank has cut its key interest rate by 50 basis points to 10.75% at each of its last six meetings and in March announced a further cut of the same size in May.
But Gov. Roberto Campos Neto recently said policymakers could no longer provide guidance on policy decisions due to increasing uncertainties, with some expecting the pace of easing may be slowed.
Finance Minister Fernando Haddad last month urged policymakers not to be intimidated by employment data when assessing the scope for further rate cuts, while suggesting the government could raise its economic growth forecast in 2024.
President Luiz Inacio Lula da Silva, who has previously criticized the central bank over high interest rates and called job creation his “obsession,” welcomed the latest jobs figures.
“The government has stood up for everyone and we will continue to move forward,” he posted on social media.
($1 = 5.1419 reais)
(Reporting by Marcela Ayres; Writing by Gabriel Araujo; Editing by Andrew Heavens, Jonathan Oatis and Marguerita Choy)