Stênio Ribeiro Reporter Agência Brasil
Brasília – Last week the Central Bank’s Monetary Policy Committee (“Copom”) raised the country’s benchmark interest rate, the Selic, by 0.5 percentage points from 11.25% per year to 11.75%. In the minutes of its meeting, Copom justified the increase by citing inflationary pressure in various economic segments. However, Copom did not see any cause for concern with fuel prices and estimated fuel price variations for 2011 at “zero.”
But fuel prices are rising in Brazil. Recent increases in the price of Brazil’s sugarcane-based ethanol, not to mention gasoline because of turmoil in the petroleum-rich Mideast, is making it harder for the government to keep inflation in line with its target for 2011 of 4.5%, says Roberto Piscitelli, a professor of economics at the University of Brasilia.
The problem with Brazilian ethanol is that mill owners are using sugarcane to make sugar (instead of ethanol) for the simple reason that international sugar prices are the highest in 50 years. The ethanol-sugar question is a domestic problem that could have a domestic solution, unlike petroleum-based fuels, says Piscitelli, as he points out that the latter are priced on the international market.
According to Piscitelli, Brazil’s giant, state-run oil company, Petrobras, is big enough to ensure domestic supply, but cannot dictate prices. And fuel prices have a big effect on production and distribution prices, which affect inflation.
Besides fuel prices, Piscitelli says there is another problem. Copom may also be off target in its forecast for so-called “administered” prices (in Brazil these are prices the government closely oversees and controls - “preços administrados por contrato ou monitorados” - fuels, electricity, telephones, water, public transportation, sanitation, health, education and a few others. At its meeting last week, Copom estimated that those prices would rise only 4% in 2011. The problem is that they account for almost one-third of the Broad Consumer Price Index (“IPCA”), which the government uses as its inflation yardstick, says Piscitelli.
Piscitelli points out that the year began with sharp rises in some administered prices, such as vehicle and property taxes. At the same time, tuitions costs in private schools have risen along with public transportation in big cities. Some of the price increases have been higher than inflation. The government also authorized a 6% increase in prices for medicines.
Another economist, Newton Marques, formerly of the Central Bank and now on the Regional Economic Council of the Federal District (Brasilia), also has doubts about the ability of the government to keep administered price increases this year at less than 4%. He points out that the General Price Index (“IGP”), another index, is at 11% and that it is used to adjust rent and electrity bills.
“It’s really hard to hold prices down in the face of these increases and the fact that you have very strong demand (“mercado consumidor forte”),” says Marques. He adds that inflation for the last 12 months was slightly over 6% and sees little chance of it converging downward on the government’s 4.5% target in the near future. Marques also points out that the usual way to combat rising inflation is by raising interest rates. But Brazil’s Selic has put the country at the top of the list of highest real interest rates. “Such high interest rates have a cost, and puts the country at odds with most of the rest of the world where at this moment interest rates are close to zero,” concludes Marques.
Allen Bennett – translator/editor The News in English
Link - Aumentam dificuldades para o controle da inflação, segundo economistas
