MercoPress. South Atlantic News Agency

Brazil's February inflation down, but central bank calls for structural reforms and budget control

Inflation slowdown came on easing food and transportation costs. Food prices rose 1.06% in February (2.28% in January). Transportation 0.62% versus 1.77%

Brazil’s consumer-price index slowed in February, providing relief for the country’s central bank amid its efforts to curb inflationary pressures. The consumer-price index, IPCA, rose 0.90% in February, compared with an increase of 1.27% in January, the Brazilian Institute of Geography and Statistics, or IBGE, said.

 The monthly inflation data came below economists’ expectations, which called for an increase of 0.92% to 1.12%, according to a survey by local news agency Agência Estado.

The 12-month IPCA was up 10.36% through February, compared with 10.71% through January. Despite the slowdown, the figure remained well above the central bank’s 6.5% ceiling.

The inflation slowdown came mainly on easing food and transportation costs. Food prices rose 1.06% in February, compared with a rise of 2.28% in January. Transportation costs increased 0.62% in the period, versus an increase of 1.77% in January. Housing was -0.15% compared to 0.81% and Personal expenses, 0.77% against 1.19%. However Education soared to 5.90% from 0.31%; communications, 0.66% from 0.22% and healthcare 0.94% from 0.81%.

With annual inflation still well above the target, the central bank is keeping its benchmark Selic interest rate at an elevated level of 14.25%, despite the country’s deep economic recession.

In effect the central bank's minutes released on Thursday show the bank will continue to be vigilant and monitor Brazil’s economic situation, and will take the measures necessary to control inflation.

However it urged the government to carry out structural reforms to reduce the budget deficit and help get price increases under control. The bank is struggling to fight inflation amid an economic contraction.

After raising its benchmark interest rate to 14.25% from 7.25% between April 2013 and July 2015, the bank has found it harder to keep tightening as the economy stumbles.

The bank highlighted “the importance of persevering with passing structural reforms in order to ensure a fiscal consolidation in the longer term.”

The government’s budget deficit has ballooned in recent months, to 10.8% of GDP in the year through January, as the weak economy has hit tax revenue.

The bank also expressed concern with the complex state of the global economy, and singled out China for special attention. The Asian country is Brazil’s biggest trading partner and the slowdown there has cut demand for iron ore and other Brazilian exports.

The central bank has said it wants inflation to end the year within its 2.5%-to-6.5% targeted range, but pundits in a weekly central-bank poll released Monday forecast at 7.6% by year end.