Brazil Expecting 3.2% Inflation, Lower than 4.5% Government’s Target

Brazilian consumer prices rose only 0.05% in August after a 0.19% increase in July, according to government figures released Thursday, surprising market experts and even Brazil’s government.

Over the last 12 months, the Broad Consumer Price Index (IPCA) rose by 3.84%, the lowest annualized inflation rate since 1998, according to the Brazilian Institute of Geography and Statistics (IBGE).

The government’s inflation goal for 2006 is 4.5% and the latest figures are likely to be good news for President Luiz Inácio Lula da Silva, who is up for re-election this year and already holds a comfortable lead according to recent public opinion polls.

The IBGE said that the low inflation figure for August was helped by a fall in the price of fuel products. After climbing 1.04% in international markets in July, alcohol prices fell by 0.8% in August, also pushing gas prices down by 0.40%. Brazil is the world’s largest manufacturer of ethanol fuel for cars.

Food prices also had a positive effect on inflation figures due to a good harvest and favorable exchange rates, Solange Srour, chief economist at Mellon Global Investments Brazil said, quoted by the Rio daily O Globo.

Despite the dramatic drop, the IBGE said the low inflation figure could be viewed as a trend for the future.

"What we have been detecting is that, looking at the last 12 months, inflation rates have been progressively decreasing," said IBGE Price Coordinator Eulina Nunes dos Santos. However she admitted that strong appreciation of the local currency, the real, against the US dollar has also contributed to the decrease of the inflation rate.

The National Consumer Prices Index (INPC), which includes families whose incomes are between one and six minimum wages, registered a 0.02% decline in August. Meanwhile, the Institute of Applied Economic Research (IPEA), a government study center, also released a report this week, in which it estimated that the accumulated inflation rate this year would be 3.2%.



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