Tags: brazil | inflation | economy | currency

Here's Why Economists Worry Brazil's Inflation Is Now Entrenched

Image: Here's Why Economists Worry Brazil's Inflation Is Now Entrenched
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Monday, 26 Oct 2015 02:26 PM

Brazil’s policy makers have blamed the fastest inflation in roughly 12 years on a weaker currency and higher government-administered prices such as electricity.

Economists don't think it's so simple.

Price increases that exceed the 4.5 percent target are widespread. Six of the nine product groups tracked by the national statistics agency still have annual inflation running above eight percent, including items as diverse as education, health care and food and beverage. In the 12 months to September, the overall consumer price index rose 9.49 percent.

Increases of freely-determined prices — ones that aren't influenced by the government — are higher now than they were when Brazil's central bank started to raise the key rate last October.

And annual inflation in the service sector, which represents 71 percent of Brazil’s economy and was considered by policy makers to be the main culprit of persistent inflation in the past couple years, shows no sign of cooling off.

To make matters worse, investors and analysts don’t believe President Dilma Rousseff is doing enough to bring inflation back to the 4.5 percent target. In July, she started losing the confidence of investors and analysts when the government said it would save less money for interest payments than planned.

Government spending boosts demand and can add to price pressures. Analysts now see inflation getting even closer to 10 percent this year and staying above its target until Rousseff leaves office in December 2018.

The pervasiveness of inflation and its deteriorating outlook even prompted the central bank this week to give itself more time than initially planned to meet the consumer price index target, moving its deadline to 2017 from 2016.

“Inflation has been high for several years and became entrenched," Alberto Ramos, chief Latin America economist at Goldman Sachs, said by phone. “It’s what it is: you cannot put a lipstick on a pig. It’s inflation close to 10 percent. It’s pretty nasty in a recessionary environment.”


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Brazil's policy makers have blamed the fastest inflation in roughly 12 years on a weaker currency and higher government-administered prices such as electricity.
brazil, inflation, economy, currency
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2015-26-26
Monday, 26 Oct 2015 02:26 PM
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