Low Inflation Seems to Have Days Counted in Brazil

Brazilian supermarket Brazil's consumer prices index in August increased at its slowest pace in 11 months, 0.28% following on a significant drop in food prices according to the latest release from the IBGE (Brazilian Institute of Geography and Statistics).

Retail inflation in July was 0.53% and in August 2007, 0.47%. Annual inflation slowed to 6.17% from a three-year high of 6.37%.

According to IBGE the Food and beverage item was crucial for the slowing of inflation from July to August, having dropped 0.18% in August after increasing 1.05% in July.

In the first eight months of the year the index has reached 4,48% well above the 2,8% of the same period the previous year. The Central Bank target for 2008 is 4.5% with plus/minus two percentage point tolerance.

The Brazilian Central bank has toughened its monetary policy to help contain inflationary pressures, and the current basic rate stands at 13%.

According to market analysts the Central Bank is expected to further increase the basic Selic rate when the monetary council meets next September 10, most probably 0.75 percentage points to 13.75%.

Goldman Sachs is forecasting in increase in inflation in the last quarter of 2008. According to the international investment management firm, "the consumer inflation decline should have short life".

The Goldman Sachs people note that since July food prices have been responsible for moderating inflation, but they believe that starting in August, the IPCA will start advancing again and will reach about 7% by the end of the year. As they see it, among the factors driving prices up there will be a strong growth in domestic demand.

Mercopress/Bzz

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