Brazil: Inflation soars on high oil prices

www.latintrade.com 02/14/2003 - Source: Latin American Newsletters

Brazil's benchmark inflation rate leapt to a six-year high of 14.5% in January, on rising fuel prices.

January's inflation rate accelerated to 2.25%, from 2.1% in December, even though interest rates have been raised to a record 25.5% and pressure on the currency has subsided. The problem is that Gulf War speculation has led to rising world oil prices, which, in Brazil, has translated into higher transport costs and higher food prices. Gasoline prices increased by 8.8% in January, bus fares by 4.99% and food prices by 2.15%.

The inflationary surge makes it likely that the central bank will raise interest rates when it meets next week. A rise in interest rates would hinder President Luiz Inácio Lula da Silva's plans to create jobs through faster economic growth. It would also add to the debt-servicing burden.

Brazil's inflation target for this year is 8.5%, but few independent forecasters think they will achieve it. The 120 economists surveyed by the central bank expect inflation will end the year at 11.8%. Last year, inflation ended the year at 12.5%.