|Café Brazil: FT Latin America Agenda|
||07/21/08 10:43 AM |
0 Brownie Points
Another Brazilian rate hike|
3 Brownie Points
| Brazil's central bank is set to continue raising interest rates this week as inflationary pressure persists. Many economists expect consumer price inflation to be nudging the top end of the government's target range of 2.5-6.5 per cent by the end of the year, well in excess of the core target of 4.5 per cent. |
Inflation topped 6 per cent in the year to June; it is widespread and shows little sign of slowing. True, the "diffusion index" - the percentage of all items measured that are rising in price - has fallen to 67 per cent from a high of 71 per cent in May. But inflation has spread well beyond food and imported goods and is starting to have an impact on wage bargaining, as demonstrated by last week's strike by workers at Petrobras, the government-controlled oil company. Oil workers say they will continue their industrial action and other workers can be expected to follow their lead.
Henrique Meirelles, president of the central bank, told the FT recently that other central banks should join Brazil's in concentrating on inflation, which he described as the greatest danger facing the world's economies today. He is to be praised for acting early and firmly. But Brazil, unlike other countries, has not so far had to balance the risk of inflation against that of recession. If a slowing global economy results in a collapse in commodity prices as many economists predict, Brazil's choices will no longer be so clear cut.
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