Brazil Central Bank Expecting Bad News on Inflation Front

The Monetary Policy Committee (Copom) of Brazil’s Central Bank (BC) is less optimistic than are market analysts when it comes to the behavior of prices that are administered by contract or monitored by the government.

They include prices of fuel, electricity, telephone services, health, education, water, sanitation, and mass transportation among other items.


Last month, these items weighed 29.6% in the composition of the Broad Consumer Price Index (IPCA), which rose 0.25% overall.


According to the minutes of last week’s Copom meeting, released Thursday, August 25, by the Central Bank, the forecast for cumulative fixed telephone service rate readjustments this year was lowered from 6.5% in July to 6.1%, while the expectation for electricity rates remained at 8.2%.


The prospect of gasoline and cooking gas price readjustments is discounted, despite high international petroleum prices.


Based on this scenario, the Copom minutes retain the projection of 7% for this year’s variation in administered prices and 5.7% for next year.


These estimates are higher than the forecasts in the BC’s latest Focus survey, based on information gathered last Friday, August 19, from a hundred market analysts and financial institutions, indicating variations of 6.80% in 2005 and 5% in 2006.


Despite the lack of optimism regarding administered prices, the Copom minutes express confidence in the existence of a “benign scenario” for the general evolution of inflation, as a result of the continued price dampening process, which has already lasted three months, in the markets for agricultural and industrial food products.


So much so that the cumulative IPCA from January to July stood at 3.42%, increasing the chances of a convergence towards the government’s official target of 5.1% for this year’s inflation.


Agência Brasil

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