Brazilians Seem Optimistic About Their Economy But Fear Inflation

Brazilian economy Brazilian consumers’ Confidence Index as indicated by the latest Getúlio Vargas Foundation data shows that there was little change as the new year begins. In December 2010 it was 121.7, and in January 2011, 121.6.

What happened in the most recent survey was a variation of one of the sub-indexes. Thus, while the percentage of those who see the present moment as “good” remained essentially the same (35.5% in December and 35.6% in January), there was an increase in the percentage of those interviewed who consider the situation “bad;” it went from 15.4% to 19.3%.

On the other hand, positive expectations regarding the next six months showed an improvement, going from 108.9 to 109.7. This survey of expectations, like many surveys in Brazil, was based on numbers gathered in large metropolitan areas. In this case, in seven of the country’s biggest urban centers between January 3 and 21.

Uncertainty

In the minutes of last week’s meeting (January 18 and 19), Brazil’s Monetary Policy Committee (Copom) spelled out its recognition of the existence of “above normal” levels of uncertainty in the Brazilian economy with regard to the possible impact inflation may have.

Copom mentioned rising risks of “a scenario in which inflation converges on the target established by the government.”

The government’s inflation target, based on the Broad Consumer Price Index (IPCA), is 4.5%, plus or minus two percentage points. On Monday, the Central Bank released a market estimate of 2011 inflation at 5.53%.

The members of Copom expressed concern with food prices that are subject to the strong influence of domestic and foreign supply, as well as climatic conditions that have been highly adverse in parts of Brazil at the beginning of this year.

Other relevant risks were posed by supply and demand disorder and the problem of a lack of skilled workers that a growing economy calls for. “This is a situation where nominal salary increases may be incompatible with the growth of productivity levels,” said the Copom minutes.

The Copom also laid out its expectations for the 2011 economic landscape and did not include any plans to raise the prices of gasoline or cooking gas. However, the minutes did mention plans to raise the bill for electricity and land telephones, by 2.8% and 2.9% respectively.

Gasoline, cooking gas, phone and electricity prices are among so-called state administered prices.  These state administered prices weigh heavily (29%) in the formula used to calculate the Broad Consumer Price Index (“IPCA”) that the government uses as its inflation yardstick.

Copom went on to say that the government’s primary surplus target of 3% of GDP stands, adding that the surplus target could rise to 3.1% in 2012.

In this, the first Copom meeting of the Dilma Rousseff administration, it was also decided to raise the country’s benchmark interest from 10.75% per year to 11.25%.

ABr

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