MercoPress. South Atlantic News Agency

Brazil: low inflation but local currency too strong

Inflation in Brazil during March reached 0,61%, slightly higher than in February (0,59%) accumulating 1,79% in the first quarter and 7,4% in the last twelve months reports the Brazilian Statistics and Geography Institute, IBGE.

Even when March's figure was higher than a year ago (0,47%) the first quarter of 2005 was below the same period in 2004, 1,85%.

In the last twelve months ended in February 2005, inflation reached 7,39%. During 2004 inflation totalled 7,6% and this year's target is 5,1%.

However the Brazilian Central Bank further increased this year's inflation projection to 5,5%, after having estimated 5,3% last December.

Markets on the other hand forecast inflation will be closer or above 5,88%.

IBGE reports that urban transport and water rates had a significant incidence in March's retail prices index.

Brazil's Central Bank is keeping a tight rein on inflation with record high interest rates. The basic Brazilian rate, Selic, now stands above 19% which industry and exporters fiercely criticize because of its side effects on the Brazilian currency.

The Industry Federation from the state of Sao Paulo, FIESP the strongest in the country has repeatedly complained about the sustained appreciation of the local currency, Real, against the US dollar which is affecting Brazil's export competitiveness.

"The Brazilian export drive has been affected. This is very serious and we believe the Central Bank has played an insufficient role", said Roberto Giannetti de Fonseca president of the Foreign Trade Department of the powerful FIESP.

The US dollar has been consistently loosing ground against the Real and now stands below the 2,60 Real/one US dollar parity.

Brazilian exporters demand the US dollar returns to the range of 2,90/3,00 Reales.