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Brazil Inflation in Check
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December 5, 2006
São Paulo, Brazil November 25, 2006 - The effect of a nine-month series of interest-rate hikes ended in May continues to be seen both in recent inflation results and inflation projections, Brazil‘s Central Bank said Thursday in minutes of its Aug 16-17 monetary policy meeting.
The Central Bank last week decided to leave the benchmark Selic interest rate unchanged at 19.75% annually for the third consecutive month. Prior to that, the bank boosted Selic by a total of 3.75 percentage points in efforts to head off inflation.
The outlook for Brazilian inflation remains benign despite a seasonal hike in consumer prices in July, the bank said in the notes.
The IPCA Broad Consumer Price Index, the main reference for Brazil‘s monetary policy, rose 0.25% in July after declining a slight 0.02% in June, bringing cumulative inflation for the year to 3.42%. Twelve-month IPCA inflation, however, slowed to 6.57% in July from 7.27% the previous month.
The Central Bank aims at 5.1% IPCA inflation this year.
Meanwhile, inflation projections for the IPCA in 2005 have fallen for 14 weeks in a row, having declined to 5.34% from 5.40% in the latest weekly "Focus" survey of market forecasts.
Unlike Central Bank‘s minutes for July, the August notes no longer mention necessity for holding "interest rates for a sufficiently long period of time" so as to drive actual inflation toward inflation targets. Instead, the bank said it would continue to watch the evolution of inflation prospects ahead of its next meeting in September.
In the notes, the Central Bank lowered its inflation forecast for fixed-line telecom charges this year to 6.1% from 6.5%.
The bank also reiterated projections of zero inflation for gasoline and cooking gas prices in 2005, 8.2% inflation for electricity rates and 7% inflation for government-administered prices.
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