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:

  • Show Comments (0)

Your email address will not be published. Required fields are marked *

comment *

  • name *

  • email *

  • website *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Ads

You May Also Like

After American Recall Brazil Halts Processed Meat Exports to US

Brazil’s Agriculture ministry informed that it will send a team of experts to the ...

Brazilian Egg Becomes a Brand to Lure France, Japan and China

The Brazilian Poultry Exporters Association (Abef), in order to stimulate egg exports from Brazil,  ...

Brazil’s Package to Boost Economy Includes 1 Million New Homes

Luiz Inácio Lula da Silva, the president of Brazil, said that his administration will ...

Brazil Offers Ethanol to the U.S. and Calls for End to Subsidies

During his visit to Washington this week, Brazil’s Minister of Development, Industry and Foreign ...

Dissecting Brazil’s Zero Hunger

In Brazil, a country of abundance, the existence of mass hunger is a fact ...

Making the Brazilian Desert Bloom and Bear Food

The temperature is high: 113 degrees F in the hottest months. The rain only ...

UN Calls World’s Biofuel Push Led by Brazil as Crime Against Humanity

A United Nations expert has condemned the growing use of crops to produce biofuels ...

Varig’s Eleven: 11 Bidders Interested in Bankrupt Brazilian Airline

Eleven companies have shown interest in acquiring the routes, planes and offices of Brazil’s ...

Burning the Forest to Save the Forest, in Brazil

Sparks often fly when environmentalists and farmers come together, especially in Brazil. And that ...