Saturday, July 21st 2012 - 07:45 UTC

Good signals from the Brazilian economy: inflation picks up in mid July

Consumer prices in Brazil rose faster than expected in the month to mid-July on higher food costs, suggesting the central bank may have less room than previously believed to cut interest rates much further.

Lower rates and stimuli measures could be finally working, which could mean a relief for President Dilma Rousseff

Brazil's central bank has slashed interest rates in eight straight meetings to a record-low 8% in an effort to stimulate the country's faltering economy.

Brazil's benchmark IPCA inflation index rose 0.33% in the month to mid-July, government agency IBGE said on Friday, up from 0.18% in the previous reading.

Twelve month inflation rose to 5.24% from 5% in the previous month. Although it still sits comfortably within the government's target of 4.5% plus or minus two percentage points, it was the first rise for the mid-month inflation index since September.

That could strengthen the case for the central bank to stop cutting rates soon. The bank led by Alexandre Tombini signal led in minutes published on Thursday that at least one more cut should follow in August to prop up economic growth.

Yields on interest rate futures rose after the data was released suggesting traders see a higher likelihood that the central bank will stop cutting rates in August.

Food prices rose 0.88% after a 0.66% gain in the previous reading. Grain and soybean prices have jumped in global markets as the United States struggles with its worst drought in over 50 years.

Personal expenses like housekeepers' salaries also pressured the index, gaining 0.92% from 0.34% in mid-June. Transportation prices fell 0.59%, after declining 0.77% in the month to mid-June.

Brazil's anaemic pace of growth had been keeping a lid on consumer prices, which had risen at their fastest pace in seven years in 2011. Its once-booming economy is expected to grow this year at the slowest pace since the global credit crunch in 2008-2009, eking out a pace of growth comparable to struggling developed nations such as Japan.

 

Published in: Economy, Politics, Brazil, Latin America.
Tags: Brazil, Brazil economy, Brazilean inflation, Dilma Rousseff, IPCA inflation index.

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1 ChrisR (#) Jul 21st, 2012 - 10:47 am Report abuse
How can a rise in inflation be a 'good signal' from the economy? :o(

Bizarre headline.
2 British_Kirchnerist (#) Jul 21st, 2012 - 04:58 pm Report abuse
Well according to the article the government doesn't want inflation to go below 2.5%, in fact 2% would be worse than 6% according to their official target, so it must serve some role or signal something else that is positive. Rising wages, perhaps?
3 ChrisR (#) Jul 21st, 2012 - 06:17 pm Report abuse
@2 The only thing I can think of that would appeal to the demented Finance Minister is that a rise of 6% (say) would give the illusion of expansion in the economy in excess of his 'guarantee' of 2.5%.

It would of course creat far worse problems.
4 Fido Dido (#) Jul 21st, 2012 - 06:54 pm Report abuse
It's much better than in the States that's in an deflationary situation and stagnant/declining salaries and high/extreem high indebtnes consumers who's home's value are sinking.
5 JoseAngeldeMonterrey (#) Jul 21st, 2012 - 07:09 pm Report abuse
Controlled inflation is a good sign of a healthy economy moving forward, specially in the light of stagnant growth, as it has been the case with Brazil´s last three quarters. I am right, Brazil´s economists are worried about stagnation.
Stagnant growth and low inflation can eventually lead a country to deflation, when people stops buying things expecting to see prices coming down, unemployment rises and the economy stalls. Japan´s bubble economy expanded during the 80s but suddenly collapsed into deflation and stagnation, in what people calls the Lost Decade. I don´t see that scenario for Brazil.

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