Brazil is far from stagflation, central bank chief Alexandre Tombini said, forecasting the economy will pick up speed and inflation will ease in coming months. In similar terms Economy minister Guido Mantega said the economy should pick up in the second half of the year after a slow start and hit more “reasonable” growth levels in 2015.
“We certainly cannot speak of a crisis,” Tombini told lawmakers at the Senate’s economic affairs committee. “I want inflation to be lower than it is now, but it remains under control.”
Tombini’s remarks are at odds with the view of some economists and investors, who have noted recently that inflation is running above the central bank’s target range and economic growth has ground to a near halt.
President Dilma Rousseff’s main contender in the October presidential election, Senator Aécio Neves, has recently described this outlook as one of “stagflation”.
In Tombini’s view, monetary policy is helping control inflation pressures, which should fade over the next year. He also said economic growth will recover in the second half of this year. Tombini did not speak of possible rate hikes, but he reiterated that the bank is not considering reducing its benchmark Selic interest rate in the near future from its current 11%.
Tombini also said there is no contradiction between high interest rates and the recent measures that injected up to 20 billion dollars in credit into the country’s ailing economy.
The credit stimulus, aimed at ensuring financial stability, is known as “macro-prudential measures.” When risks to the banking sector subside, the central bank may allow more credit to flow into the economy, Tombini said.
Likewise Mantega discarded recent criticism. “We have a more favorable outlook and see quicker growth in the second half of the year, although 2014 will be a sort of transition year for us and for everyone in the world, we believe that we have the conditions to grow more next year.”
Mantega anticipated that the recovery ahead would be gradual and that the Brazilian economy will not immediately see the 4% annual growth rates that made it a Wall Street darling in the past decade.
Prices in Brazil have eased on a monthly basis since March, but 12-month inflation rose to the 6.5% ceiling of the government official target in June. The government’s inflation target is the middle of a 2.5 to 6.5% tolerance band.
Mantega, who declined to confirm whether he will stay on after eight years in the job if Rousseff is re-elected, ruled out any sharp increases in the price of electricity and fuel next year as inflation pressures subside.
But he signaled that authorities could hike fuel prices later this year. Brazil has not yet raised gasoline prices in 2014.
“Every year we adjust fuel prices … that’s the rule,” he said when asked if fuel prices could be raised this year.
The market expects the government to increase energy prices next year after keeping them artificially low for more than a year, stoking already high inflation.
Many economists also say the Brazilian economy may have fallen into recession after a likely contraction in the second quarter and a possible downward revision in first quarter growth numbers. But Mantega was emphatic, “there is no recession, no stagflation” and added “the use of these terms is an exaggeration.”