Brazil’s Raising Inflation Increases Chances of Higher Interest Rates

Brazilian inflation Inflation in Brazil has risen above government target (4.5%) levels for a second consecutive month in February reaching 4.83%, up from 4.59% in January, Brazilian Census and Geography Bureau, or IBGE, said Friday. Eulina dos Santos, coordinator for IPCA (National Index of Consumer Prices Wide) data at IBGE, said 2010 has already accumulated inflation of 1.54%, well above the 1.03% in the first two months of 2009.

“Discounting inflationary pressures normal for this time of year, such as in education and food, what has caused this level of much higher inflation is the recovery of the economy itself,” said dos Santos. However she admitted that inflation in education costs in January and February may have skewed the data for those months.

If inflation were calculated without education costs, then it would have eased 0.35 percentage points in the first two months of the year, compared to the year-ago period. “This proves that the trend for inflation in other costs is to fall,” she said.

But analyst believe that the dynamism of economic activity is likely to keep core inflation running slightly above the targeted level and raise the chances of an interest rate hike this month when the Central Bank monetary committee, Copom, meets.

Brazil’s debt market is betting 50%-60% on a rate hike in March, said Octavio Vaz, a trader at Rio de Janeiro’s Global Equity, although his firm is predicting no change in March rates. The benchmark Selic rate is currently at a record-low 8.75%.

Although IPCA inflation will be considered by Copom later this month, other factors must also be brought into the equation.

Industrial capacity usage figures released Thursday showed a slight decline in January to 81.4% from 81.5% in December. Industrial output figures for February, while strong, suggested the pace of expansion was decelerating or settling.

Finance Minister Guido Mantega said Monday he believed the central bank’s decision to raise bank reserve requirements would help control inflation by curbing the local credit supply. “I’m hoping it won’t take any other measures,” he said.

Speaking in New York Friday, Brazilian Central Bank President Henrique Meirelles acknowledged that raising reserve requirements affects monetary policy, but said it isn’t a substitute for interest rates.

“Interest rates are the most important and effective measure for monetary policy,” he added, declining to say on whether rates will be raised at the next policy meeting.

Mercopress

Tags:

Ads

You May Also Like

Shorter Lives

The fecundity rate has declined dramatically from the 60s and 70s when every Brazilian ...

Lula’s Plan to Make Brazil a First World Country

In today’s edition of “Breakfast with the President,” Brazilian President Luiz Inácio Lula da ...

Brazil Earmarks US$ 4.7 Million for 41 Stem Cell Research Project

During the next two years, 41 research projects involving embryonic and adult stem cells, ...

Foreign Tourists Spend US$ 1.5 Bi in Brazil While Brazilians Spend US$ 1.7 Bi Overseas

Foreign tourists spent US$ 1.5 billion from January to April this year in Brazil, ...

Brazil Is Hungry for US Firms: Swift, Anheuser Busch and Now Burger King

American fast-food giant Burger King announced that it has decided to sell the company ...

Rural Worker Gets a Day at the Doctor in Brazil

Pesticide poisoning, pain, and excessive exposure to the sun, which can cause skin cancer, ...

Brazil Is World’s Second Largest Pet Market

Brazil has the second largest world pet population, estimated at 27 million dogs and ...

February 1994

CONTENTS: Cover: The Generals are watching (p. 7) Betinho talks (p. 13) Saving the ...

Brazil’s Supreme Follows the Money and Condemns Lula’s Top Aide for Corruption

Brazil’s Supreme Court continued the trial of Penal Case 470, the mensalão, second part ...

Brazil Senate Opens Hearings on Sustainable Development in the Amazon

The sustainable development plan for the Amazon region, in Brazil, which has been in ...