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Brazil consumer prices in August increase for the twelfth month running

Tuesday, September 6th 2011 - 22:22 UTC
Full article 5 comments
Food prices rose for the first time since last May Food prices rose for the first time since last May

Brazil’s inflation accelerated for the 12th straight month in August to its fastest annual rate since 2005. Consumer prices, as measured by the IPCA index, rose 0.37% in August from the previous month, the national statistics agency reported on Tuesday. Prices rose 7.23% from a year ago, the highest since June 2005.

The inflation report follows the recent cut in the Central bank benchmark interest rate to 12% on August 31, after raising it at the previous five policy meetings, in the most abrupt turnaround in monetary policy since 1999.

The bank said a “moderate adjustment” in the key rate wouldn’t compromise its 4.5% inflation target next year because of a “substantial deterioration” in the global economy.

Last week’s rate cut prompted analysts covering the Brazilian economy to increase their inflation forecasts for next year and 2013.

Consumer prices will rise 5.32% next year, according to the median forecasts in a Central bank survey of about 100 economists published Monday. The forecasts were up from 5.2% the previous week. The benchmark Selic rate will fall to 11.88% by the end of 2012, the survey found.

Core inflation rose 0.42% in July, from 0.37% in June, and should continue to rise in coming makes, making further cuts unadvisable, Flavio Serrano, an analyst for Espirito Santo Investment Bank, said in a report.

The increase in prices last month was the biggest since a 0.47% rise in May. Food prices rose for the first time since May, jumping 0.72% in August. Transportation costs fell 0.11%. Clothes prices rose 0.67%, while housing increase 0.32% and household goods jumped 0.57%.

Central bank president Alexandre Tombini has said that the pace of price increases will start to slow in September.

Brazil’s economic growth slowed last quarter the most since its 2009 recession, growing 3.1% from a year earlier. Growth was led by a 4.9% xpansion in the retail sector, while imports surged 14.6% after the Super Real hit a 12-year high during the quarter.

A new report on Tuesday showed that manufacturers reduced production in July. Installed capacity fell to 82.1%, its lowest level since February 2010 and down from 82.4% in June.

While inflation has shown signs of slowing, rising wages are still bolstering demand. Brazilian unemployment fell to 6% in July, (the lowest level this year), and salaries for autoworkers have risen as much as 20% in recent weeks. Brazil’s minimum wage, which is used to adjust pension payments, is slated to rise 14% next year.

President Dilma Rousseff is counting on further rate cuts this year and has told the central bank she will reinforce fiscal measures to pay for the shift in monetary policy, Folha de Sao Paulo reported Tuesday.

Rousseff considers it a good moment to bring rates down to the level of developed nations, which would help convince lawmakers to limit public spending, according to the newspaper.

“There can be no doubt about us continuing our rigorous strategy of containing inflation” Finance Minister Guido Mantega said in an interview in Sao Paulo on Sept. 2.

Government efforts to contain spending will assist the central bank in its inflation fight and complement a “more active” use of monetary policy, Mantega said. The government last month raised by 10 billion Real its budget surplus before interest payments target this year, and Rousseff’s administration has no plans to increase salaries for federal government employees in 2012, he said.

Categories: Economy, Brazil.

Top Comments

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  • GeoffWard2

    My partner tells me it is getting to be as costly to shop here as it is in England.
    Seems like the beautiful bubble of success is coming with a big price-tag. Still, there's always the new Credit economy that will see us all through ;-(

    Sep 06th, 2011 - 11:20 pm 0
  • Forgetit87

    This year credit has slowed down by quite a bit vis-à-vis 2010. In fact, the whole economy has cooled down. It's clear that inflation is not entirely connected to domestic demand. That is, it has gone up, not only because of demand growth, mainly as a result of economic policies elsewhere, up North - for everytime the US adopts a loose monetary policy, food prices, as well as prices for other commodities, go up. This has been seen in previous decades as well. Brazil is not an economic island. The outlook for its economic performance will be affected by processes undergone by neighbors and greater powers. So don't too hasty in blaming prices on the fast growth during the last few years. Even if that was the reason, you wouldn't know it considering your dismal knowledge of basic economics.

    Sep 06th, 2011 - 11:36 pm 0
  • Fido Dido

    Do you and your partner understand why there is inflation in Brazil and other so called emerging markets and who really is causing it?

    Do you and your partner understand why England is becoming slowly a shit hole? Oh no sorry, that's not possible there right, they are to sophisticated there to let that happen.

    ”The housing market is stuggling and prices keep going down while Brits see their spending power eroding by inflation (printing money from thin air, keep interest rates close to zero percent to keep speculators, aka banksters, happy at the cost of the savers and taxpayers)

    Sep 07th, 2011 - 02:08 am 0
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