NEWS IN ENGLISH – A growth recipe: along with low interest rates, a dash of inflation (II)

13/09/2012 10:24

Mariana Branco and Wellton Máximo  Reporters Agência Brasil

Brasilia - According to André Braz, an economist at FGV, “Inflation at around 5% is not a threat to family purchasing power. What is unacceptable is inflation above 6.5%, the target ceiling, where the safety net wobbles and it gets hard to combat a further rise in inflation.”

Braz points out that salary increases above inflation have ensured that purchasing power has remained solid. “A point of reference for this position is the minimum wage that has risen above inflation, with accumulated real increases. Last year it went up 14% to R$622. This year there are demands to raise it 8%, which is certainly more than inflation will reach,” he says.

Braz adds that measures by the government to sidestep the effects of the international crisis – reduction of interest rates, an exchange rate favorable for exports and consumers paying lower sales taxes – have as yet had only timid results, but should become more important over time. “These are policy decisions that take a while to make a difference in the real economy. A reduction in interest rates, for example, usually takes around nine months to impact the market. In the meantime, the government’s main concern should be with protecting jobs and family income, even though there may be risks,” he concludes.

Miguel de Oliveira, an economist who is vice president of the National Association of Financial Executives (“Associação Nacional dos Executivos de Finanças Administração e Contabilidade – Anefac”), also considers lower interest rates healthy for the economy in spite of the threat of inflation.

. “In a crisis, keeping jobs is more important than inflation. Avoid a recession. After the country starts to grow, you deal with inflation,” he says. As for the sluggish state of the economy at the moment, Oliveira agrees with Braz: “The process is gradual. Investments fall because of the crisis. We expect things to improve some later this year and strong growth only next year,” declared Oliveira.

Allen Bennett – translator/editor The News in English

Link - Governo deverá aceitar inflação maior para manter juros baixos, dizem especialistas