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Brazil August inflation relatively stable, but food prices could change the picture

Thursday, September 6th 2012 - 04:04 UTC
Full article 3 comments
The rise in food costs accounted for nearly half of the index gain The rise in food costs accounted for nearly half of the index gain

Brazil's annual inflation remained relatively stable in August, and was broadly in line with economists' forecast, data released by statistical office IBGE. The consumer price index increased 5.24% on an annual basis in August, just ahead of the 5.2% recorded in July.

On a monthly basis, consumer prices rose at a slower pace of 0.41% in August than 0.43% in July, said the Wednesday release from the stats office IBGE.

Food prices rose 0.88% month-on-month, slightly down from a gain of 0.91% in July. The rise in food costs accounted for nearly half of the headline index gain. Housing costs moved up 0.22%. Prices of household articles were higher by 0.4% compared to July, and transportation costs were up by 0.06%, data showed. Costs of health and personal care accelerated to a rise of 0.53% in August from a gain of 0.36% in July.

The rise in food prices caused by unfavourable weather in producing areas in Brazil and in the United States and was also the main contributor to August's inflation.

Although inflation remains within the government's target of 4.5% plus or minus 2 percentage points, some analysts fear an expected rebound in economic activity and mounting pressures in food costs may push the consumer prices index close to or beyond the target ceiling next year.

The central bank chief, Alexandre Tombini, has been saying that inflation would eventually converge to the mid-point of the target range, allowing for lower borrowing costs. But analysts expect inflation to stay around 5.2% through this year and accelerate to 5.5% next year, according to a weekly central bank survey.

Brazil's historically low investment rates mean Latin America's largest country can't grow too fast without fostering inflation. Investment equalled just 17.9% of GDP in the second quarter, the lowest ratio among major Latin American economies, according to Goldman Sachs.

Categories: Economy, Politics, Brazil.

Top Comments

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  • ChrisR

    Oh yes, as I predicted just a few months ago, the end of the year is going to throw the light of reality on how little Brasil has grown (if at all) despite the desperate statements of the 'Finance' minister.

    Sep 06th, 2012 - 07:35 pm 0
  • British_Kirchnerist

    “Brazil's historically low investment rates mean Latin America's largest country can't grow too fast without fostering inflation”

    Genuine question: how long does it take to fix a “historical” legacy like that? Surely it cant be set in stone forever...

    Sep 08th, 2012 - 09:52 pm 0
  • ChrisR


    As it's a genuine question I will answer it.

    The problems in Brasil are similar to Argentina but they are attempting to amend their ways.
    1) The banks are shy of loaning money to the public because the law does not allow them any recovery of defaulted loans, even if the asset is a vehicle, etc. so their bad debt is already rising following Rousseff's dictate to banks to loan more to the public - inflationary pressures there for a start. Remember that all businesses have to pass on their costs to their customers or go out of business;
    2) A big problem is the abysmal road system for a country the size of Brasil which is also trying to expand the internal market. Money spent on infrastructure inevitably encroaches on the 'subsidies' moneypot putting pressure on regional government and risking strikes with the policia, etc. That's why Rousseff is considering private road building. Just hope they make a better job of it than John Major and the M6T;
    3) Finally, it's one of culture. How people think and react to situations takes years to change, especially if it's 'dad did this so it must be right' type of logic. Think of Argentina; the lies they tell the children at school live with them until they learn the truth - if they ever do. Massive, massive culture problem there.

    There are other problems but this will do to get your head around. :o)

    Sep 09th, 2012 - 12:58 am 0
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