Brazil’s Central Bank Worried About Higher than Expected Inflation

In the minutes published today of the Central Bank Monetary Policy Committee’s (COPOM) most recent meeting, held on January 17-18, the committee estimates that inflation in January will exceed expectations.

The document underscores, however, that the upward move is the result of "temporary influences," mainly the increase in fuel prices and bus fare hikes in the capital cities of Belo Horizonte (Minas Gerais), Brasí­lia (Federal District), and Fortaleza (Ceará).

"The rise in inflation at the start of 2006, as detected by various indicators, has been occurring with greater intensity than was originally anticipated," the text says.

"To a great extent, the recent hike is due to temporary influences, predominately seasonal in nature, which should have an impact on inflation in the first two months of the year."

The COPOM points out that this effect should decline over time, without posing a long-term inflationary risk.

In the minutes, the committee reaffirms that it will continue acting to ensure that the gains "obtained up to now in the fight against inflation will be permanent."

To accomplish this, it will follow closely "the evolution of inflation and the various measures of its nucleus, promptly adjusting the posture of monetary policy to the circumstances."

At its most recent meeting, the COPOM reduced the annualized benchmark interest rate (Selic) from 18% to 17.25%, without bias, that is, without signaling an adjustment in either direction prior to its next meeting, scheduled for March 7.

Agência Brasil

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