Brazil Fears Inflation While GDP Grows 5.8%

In a Brazilian supermarket The Gross Domestic Product (GDP) of Brazil expanded 5.8% in the first quarter compared to the same period a year ago, and 0.7% over the previous quarter, according to the latest release from the IBGE (Brazilian Institute of Geography and Statistics).

Higher consumer spending boosted growth, which was in line with private forecasts. In the last 12 months to March GDP expanded 5.85% and household consumption rose 6.6% in the first quarter from a year ago.

Domestic demand, fueled by credit, public spending and rising incomes, is helping Latin America's biggest economy offset declining exports.

IBGE data shows manufacturing increased 1.6%, services 1% while agriculture suffered a 3.5% contraction during the quarter.

The Brazilian Central Bank which in the last eight years has been known for its orthodox approach in combating inflation is expected to raise the benchmark interest rate to 14% by the end of the year from the current 12.25%. Inflation in April/May reached a two year high.

Government spending jumped 5.8% in the first quarter from a year earlier, while exports fell 2.14% from a year ago, their first quarterly decline since June 2006.

Private analysts estimate the Brazilian economy will peak in the second quarter somewhere in the range of 6.2% before moderating towards 5.4% at the end of 2008.

Finance Minister Guido Mantega said it was "desirable" for growth to slow from the previous quarter to ease concern about demand outpacing supply and fueling inflation.

"We now have a greater convergence between demand, the consumption of families and society, and supply," Mantega told reporters in Brasilia.

The Central Bank raised the basic Selic rate twice by half a percentage point in April and June to 12.25% from 11.25%. Inflation has been above the 4.5% target since January and the April increase was the first in almost three years.

The services industry, which accounts for about 60% of the Brazilian economy, expanded 5% from a year earlier. Manufacturing rose 6.9% and agriculture, which accounts for less than 10% of GDP, grew 2.4%.

Brazil's local currency, the real, gained 19% in the past 12 months against the US dollar, one of the best performance among the world's leading economies. The strong appreciation of the Brazilian currency is also helping to mitigate the impact of record oil prices on the Brazilian economy.



  • Show Comments (4)

  • mcv

    both still bad!!! πŸ˜‰

  • mcv

    inflation still better then recesssionnnnn…..some go up….some go down…so far

  • João da Silva

    “And a wink to Joao : “

    DonΓ€β€šΒ΄t bug me today. Today is Valentines day in Brazil. My (much) better half and I have been spending some quality time. πŸ˜‰

    In the meantime, you are in charge of this blog πŸ˜€ πŸ˜‰ πŸ˜‰ πŸ™ πŸ™ πŸ™ πŸ™

  • ch.c.

    Brazil Fears Inflation ?????
    NO…no…no….FEAR !!!
    Inflation IS THERE !

    “Consumer prices as measured by the benchmark IPCA index increased 0.79 percent last month, more than any of the 36 economists surveyed by Bloomberg expected. It was the biggest monthly jump in prices since April 2005.

    The increase pushed the annual inflation rate to 5.58 percent, the fastest since January 2006, from 5.04 percent in April. Accelerating inflation may prompt central bank President Henrique Meirelles to raise the benchmark rate for a third time next month and lift it more than was earlier forecast.
    The inflation scenario is getting very worrisome,” said Juan Jensen, an economist at Sao Paulo-based Tendencia Consultoria. “

    And a wink to Joao :
    Remember once more…when there is a change in trend in interest rates in whatever country developed or not, there is a 98 % chance that this is just the start of a new trend.
    Therefore time to get out or in…..longer term bonds .
    And Noo need to predict, most probably incorrectly, when the new trend will end and reverse its course, just wait…patiently the reversal !
    Later this year, may be next or the following year…..I have noooooooooo idea. At what level….I have noooo idea…..yet !
    But there will be new opportunities…probably…to re-enter the Brazilian Government Bonds Market.

    And guess what :
    These idiots will be idiot enough…to finance my Brazilian real investments…by offering the World Highest Interest Rates…..after inflation. Simply because they have no alternatives…in their own filthy and rusted system, that every common sense minded people…..understand !
    Offering on a golden plate…..such high rates…is a guarantee of opportunistic investors going in…and OUT.
    But not a guarantee of a long term (10 years PLUS) investments !
    What should be sold…in Brazil, ALL emerging markets, and in the EU ?
    Real estate…real estate….real estate….real estate.
    Facts :
    This cycle provided them with HISTORICAL low interest rates, that not even older people had in their lifestime !
    Thanks to whom ? Mr Greenspan of course.
    But excesses one way or the other….have an end….by definition !
    The bill to pay for excesses is on the table.
    Already in U.S.A., already in Spain and the UK, waiting in France and Italy.
    Already in Thailand, Philippines, waiting in China, Malaysia.

    Outside the USA where the end is near….elsewhere it just started !

    And listening to the rosy scenarios from Brazilians, is like when the EU Presidents said…..not in the EU……, real estate problems in the USA are localized in their area….not ours !!!! Smiiiiiiile !
    Not admitting problems will just make them…. longer and harder to settle.
    I remember last August when Bernanke said publicly : the real estate slowdown should be well contained. Subprime losses could be quantified at us$ 100-150 billion.
    And the other Politicians, Central bankers of other countries said or are saying the same about their own countries….of course.


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