In the latest warning against surging consumer prices in Brazil, Brazilian President, Luiz Inácio Lula da Silva and Brazil's Central Bank's president guaranteed that fighting inflation remains a top priority of the Lula administration.
Speaking to an audience of investors at the Bovespa, the São Paulo stock exchange, Lula said his government is determined to stop short-term inflation pressures from becoming permanent.
The Brazilian president described inflation as one of the country's most pressing issues because it affects poorer Brazilians the most, as it eats away people's buying power.
"We will control inflation, but maintaining sustainable growth," Lula announced. "We have ways to deal with that." He added that the surge in global oil prices has pushed up fertilizer costs and has been among the main causes for an increase in food price inflation.
In the same anti inflation orthodox approach Brazil's Central Bank president Henrique Meirelles said during a television interview that "we are ready to do what it takes to keep the inflation in line with our target."
Wholesale prices are "significantly high" and may spread to retail prices, he stated.
The Brazilian Central Bank increased the benchmark Selic interest rate this month by half a percentage point for a second straight meeting with the purpose of cooling inflation which in May rose at an annual 5.8%, the fastest since January 2006.
As a consequence of the strong stands the local currency real is trading at US$ 1.60, having appreciated 9.6% this year, the biggest advance among the 16 most-traded currencies against the dollar.
Market analysts anticipate the Central Bank will raise the Selic rate to 12.75% in July, according to a June 13 bank survey. The rate is forecasted at 14.25% by year-end.
Analysts expect consumer prices will increase 5.8% in 2008 and 4.63% next year. The Central Bank target inflation is 4.5%, plus or minus 2 percentage points.
"The Selic rate is the country's main tool to keep prices under control" Meirelles said during an event sponsored by Brazil's Federation of Car Dealers in São Paulo, in southeastern Brazil.
Last April the Central Bank raised the interest rate for the first time in three years. On June 4 the rate climbed to 12.25% from 11.75%.