Diminished pressure from food and clothing prices in Brazil allowed the General Price Index 10 (IGP-10) to end the month of February with a 0.31% increase in inflation. This result was 0.11% less than in January.
According to the Getúlio Vargas Foundation, responsible for the study, the decline was the result of fallbacks in wholesale, retail, and construction prices. With this result, the overall increase in the IGP-10 during the 12 months ending in February came to 11.53%.
The Wholesale Price Index (IPA), which has a weight of 60% in the composition of the IGP-10, dropped from 0.27% in January to 0.17% in February, while the National Index of Construction Costs (INCC), which has a weight of 10%, was down from 0.70% in January to 0.47% in February.
Retail prices, measured by the Consumer Price Index (IPC) and with a weight of 30% in the IGP-10, decreased from 0.74% to 0.66% during the period.
The fall in the wholesale and retail prices of various food items and the smaller increases in transportation and clothing costs kept the increase in inflation below analysts’ expectations, which were projecting an increase of around 0.35%.
Higher Interest Rates
The Copom (Comitê de Política Monetária – Monetary Policy Committee) announced another increase in the government’s annualized benchmark interest rate (Selic), the sixth in a row since September, 2004. This time the Selic was raised half a percentage point, from 18.25% to 18.75%. The decision, made on February 16, was unanimous.
The Federation of Industries of the State of Rio de Janeiro (Firjan) criticized the hike. According to the Federation, the pace of economic growth this year will decline in consequence of the increase.
The President of the Federation of Commerce of the State of Rio de Janeiro (Fecomércio/RJ), Orlando Diniz, also expressed concern over the 0.50% hike. He considers unjustified assertions that there is a threat of demand-driven inflationary pressures
Diniz believes that the process of recovery in some sectors of the economy, especially in the area of non-durable goods, can be greatly damaged by the most recent interest rate hike.
The Caged (Cadastro Geral de Empregados e Desempregados – General Register of Employment and Unemployment) discovered that 115,972 new jobs were created in Brazil in January, in comparison with December, 2004. This is the best result ever for the month of January.
Over the past 12 months, according to the Caged, 1.539 million new job positions were generated, representing a growth of 6.63%. The service sector and manufacturing led the way.
Translation: David Silberstein