Stênio Ribeiro
Reporter - Agência Brasil

Brasília - The Central Bank's (BC) Monetary Policy Committee (COPOM) reiterated its projection of no further readjustments in gasoline and cooking gas prices for the rest of this year, despite the fact that international petroleum prices remain at a historically high level of over 70 dollars per barrel.

This forecast, which is part of an evaluation of future inflation trends, appears in the minutes of the most recent COPOM meeting, held on May 30-31. The BC directors who comprise the COPOM
maintained their forecast of 4.6% for this year's overall increase in prices administered or monitored by the government (fuel, electricity, telephone services, education, medicines, urban transportation, and others).

This figure is slightly higher than the estimates revealed in the most recent weekly BC survey of private sector economists, who projected a 4.5% inflation rate for administered prices both this year and next. Administered prices represent approximately 33% of the Broad Consumer Price Index (IPCA), which serves as a parameter for government fiscal and monetary corrections.

According to the COPOM minutes, the prices of basic services are stable. The only modifications are in the forecasts for cumulative annual readjustments in prices of electricity, revised upward from 3.6% to 3.7%, and fixed telephone services, revised downward from 3.1% to 2.6%.

The BC directors believe that the general prospect is for this year's inflation to come in below the 4.5% target set by the National Monetary Council (CMN). In their view, the "uninterrupted convergence" of the inflation rate in recent months toward the trajectory determined by the sequence of targets, together with the consolidation of a setting of "enduring macroeconomic stability," contributes to the maintenance of the process of progressively lowering the perception of risk, leaving a margin for lower interest rates in the future.

The COPOM emphasizes, however, the lag that exists between the adoption of a more flexible monetary policy and its effects on the level of activity and inflation. The committee observes that, between last September and last week's meeting, the government's annualized benchmark interest rate has decreased four percentage points, but most of the effects of the cuts have yet to materialize in the economy. Although the COPOM minutes do not mention it, other BC reports have noted that the banking system has not reduced its interest rates to the same extent.

Translation: David Silberstein