MercoPress. South Atlantic News Agency

Brazil to scrap federal taxes on food staples to lower inflation

The basket of goods includes beans and beef and certain toiletries

Brazil announced it will scrap federal taxes on certain food staples and toiletries, the latest in a series of measures to curb prices after a surprise jump in inflation in February triggered alarm bells.

Inflation rose more than expected last month despite a government-sponsored cut in electricity rates, raising prospects of an interest rate hike even as policymakers fret about a sluggish economy.

Brazil's benchmark IPCA consumer price index rose 0.60% in February, statistics agency IBGE said on Friday. The index had risen 0.86 percent in January.

Hours after the data was released, President Dilma Rousseff said in a television address that tax breaks on household staples should lower the price of products by between 9.25% and 12.5% percent. She also added three toiletry items to the list of 13 products in the basket of goods, which includes beef and beans, deemed essential for a Brazilian family to live for a month.

“I don't overlook inflation controls for a single moment because economic stability is crucial for all of us,” said Rousseff, adding that the move will cost her government 7.4 billion Reais (3.8 billion dollars) in tax revenues a year.

”That's why I don't stop looking for new ways to reduce the cost of life of Brazilians and protect their purchasing power”.

The president’s comments are a clear indication that the government is shifting its focus from the slow recovery to high inflation, which could not only hurt the economy, but also Rousseff's re-election bid next year.