Wednesday, February 27th 2013 - 06:50 UTC

Brazil expects inflation to drop in second half of 2013 on a bumper crop of grains

Brazil’s inflation will slow in the second half of the year as the country produces a bumper crop of grains and the Real doesn’t weaken as it did last year, central bank President Alexandre Tombini said.

“Inflation is showing more resistance” admitted Tombini.

“Apart from any major shocks, food inflation should not be as unfavorable as it was last year” Tombini said at an event in New York. A 14% increase in the output of grains in 2013 will help restrain food prices, he said.

The central bank’s monetary policy committee is expected to hold the target lending rate at a record low for a third straight time next week in an effort to boost growth without further stoking inflation. In the minutes to its January meeting, the bank’s board said it would hold rates for “a sufficiently prolonged period.”

However inflation has accelerated even after growth slowed in 2012 for a second consecutive year to 1%, according to estimates by the central bank.

Faster inflation amid faltering growth has led traders to bet policy makers will allow the currency to strengthen in a bid to rein in consumer prices. The Real, after posting the second-worst performance among major currencies last year, has led gains among the 16 most-traded currencies in 2013.

Tombini said the government now has more pressing issues in Brazil aside from the so-called currency war, a term coined by Finance Minister Guido Mantega in 2010 to describe policies adopted by rich nations to weaken their currencies.

The annual pace of consumer price increases has exceeded the 4.5% midpoint of the central bank’s target range for more than two years, and last year food and beverage prices rose 9.9%.

“Inflation is showing more resistance than policy makers would like” admitted Tombini.
Finally he reiterated the central bank will maintain its policy of accumulating reserves. Reserves have climbed to 373 billion dollars from 289bn at the start of President Dilma Rousseff’s administration.
 

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