MercoPress. South Atlantic News Agency

Growing inflation concerns in Brazil.

The Brazilian Wide Consumer Price index last August reached 0,69%, down from 0,91% in July, but above market estimates of 0,65%, according to the latest report from the Brazilian Statistics and Geography Institute IBGE.

However numbers can be misleading and there are distressing signals since the August index is the highest since 2001 and the accumulated inflation in the seven months of 2004 has reached 5,14%, almost the government's target for the whole twelve months: 5,5%.

IBGE Systems analyst Eulina dos Santos is quoted in the Brazilian press cautioning that in spite of August's index, inflation is actually picking up speed. In the accumulated twelve months of last May it stood at 5,15%; in June it jumped to 6,06%; in July 6,81% and in August, 7,18%.

This means that even when inflation in the first seven months of 2004 is below that of the same period in 2003 when it reached 7,22%, last year the twelve months accumulation were decreasing. Contrary to what is happening in 2004.

Eulina dos Santos points out that August inflation was caused by costs adjustments and not an increase in domestic demand.

While public utility rates in August dropped compared to July, --electricity from 3,67% to 0,5%; fixed phones from 4,88% to 0.62%; gasoline from 2,46% to 1,64%;-- food prices actually increased from 0,67% to 0,85%; salaries from 0,74% to 1,4% and supplies for the automobile industry from 1,39% to 1,73%.

The resurgence of inflation is bad news for Brazilian markets since the Monetary Policy Committee of the Central Bank when it meets next week is expected to increase the basic rate or Selic which now stands at a controversial 16% anywhere between 0,25 and 0,50%. The Selic rate has remained unchanged since last April when it was lowered 0,25% to its current 16%.

After reaching a record 26,5% in February 2003 the rate has been gradually decreasing.