Fuel Prices Drive Up Inflation in Brazil

www.bayarea.com Posted on Thu, Feb. 13, 2003 Associated Press

RIO DE JANEIRO, Brazil - Soaring fuel prices pushed inflation to 2.25 percent in January, the biggest jump for the month since 1995, the government said Thursday.

January's rise in consumer prices was higher than the 2.1 percent jump in December and above the 0.52 percent increase in January 2002, the IBGE statistics institute said.

In the past 12 months, prices measured by the key IPCA inflation index have risen 14.47 percent, compared to 12.53 percent in 2002, the institute said.

Fuel prices were the main culprit, rising 8.82 percent in January, while bus fares climbed 5 percent, the IBGE said. Food prices rose just 2.15 percent, compared to 3.91 percent in December.

The prospect of higher fuel and transport costs in the event of a U.S.-led war against Iraq could force the government to raise interest rates to keep inflation in check. The government hopes to limit inflation to 8.5 percent this year.

Many economists expect the central bank to raise its prime lending rate when its monetary policy committee meets next week. The rate now stands at 25.5 percent.

Higher interest rates would slow an already sluggish economy and could hamper the government's plans to create jobs, a top priority of leftist President Luiz Inacio Lula da Silva.

The government hopes the economy will grow 2.8 percent this year, up from an estimated 1.45 percent in 2002.