Inflation Casts a Pall over Brazil

Although no specific prediction is ventured, the minutes of the most recent meeting of Brazil’s Copom (Monetary Policy Committee), released today by the Brazilian Central Bank (BC), include the remark that in the present context, with annualized interest rates of 16 percent and the exchange rate at a level of 3.00 reais to the American dollar, inflation forecasts exceed the official targets of 5.5 percent for this year and 4.5 percent for 2005, with tolerance limits of 2 percent in either direction.Even if inflation in 2004 does not exceed the limit of 7.5 percent, this is still very close to the expectations of financial markets, which are predicting a Broad Consumer Price Index (IPCA) of 7.19 percent, due in large part to increases in industrial and administered prices, which contributed decisively to the 0.91 percent hike in the IPCA last month.

The Copom minutes mention that the estimated price readjustments for gasoline and cooking gas over the course of the year remain unchanged at 9.5 percent and 6.8 percent, respectively. Likewise, the estimates of 11.6 percent for residential electric rates and 12.8 percent for fixed point telephone services.

Regarding this month, the minutes state that the Committee expects consumer price indexes to decelerate. Overall, during the period from January to July, administered prices have already risen 4.69 percent, more, therefore, than the 4.42% increase in unregulated prices.

Agência Brasil
Reporter: Stenio Ribeiro
Translator: David Silberstein


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