MercoPress. South Atlantic News Agency

Brazil: Services sector driving prices upward, BCB President warns

The BCB will pursue the inflation target to the letter but the market still expects it to be higher, Campos Neto pointed out

Brazil's Central Bank (BCB) President Roberto Campos Neto said on Monday that inflation in South America's largest country was taking a turn in a “benign” direction, Agencia Brasil reported. In his view, the services sector requires the most attention because it has “started to put a bit of pressure” on prices.

“We need to see what the dynamics [of service sector inflation] are. We've carried out various analyses of the dynamics of service inflation and we understand that there's nothing today that sets off any kind of red light, but that we need to be aware of,” Campos Neto said at an event at the São Paulo Commercial Association (ACSP).

Campos Neto pointed out that, although the BCB has already stated that it would pursue the inflation target to the letter, the market still expects future inflation to be above expectations.

“Curiously, although the Central Bank has signaled a lot and has focused a lot on the message that we are going to pursue the target, inflation expectations are more or less stable for two, three years ahead, at a level that is above the target, of 3.5%,” Campos Neto explained.

According to the Central Bank president, the market's off-target projection stems from “several factors,” including the perception of the need for more fiscal control: “There is a part of it that is a perception that there is still a need for fiscal convergence,” he argued.

He also pointed out that the basic interest rate in Brazil is still high, but has fallen in relation to other emerging countries. “When we compare real interest rates in Brazil with other countries, we come to the conclusion that it is higher, unfortunately, than most countries, but this difference is smaller than it was in the past.”

“When we look, for example, in comparison with emerging countries, we see interest rates, for example, below Mexico's,” he added.

(Source: Agencia Brasil)