Jan 6, 2012

Brazil: Inflation in 2011

The inflation rate measured by the IPCA reached 6.5% in 2011, with a high compared to the previous year, when it reached 5.9%, as we can see in the chart below.

Several factors explain the rise in the index. Among them, we can mention the increase in international commodity prices and the pressure of the strong level of activity, especially in services prices.

We can divide the policy to combat inflation in two stages. In the first semester, the Central Bank raised interest rates and also took several macro-prudential measures aimed at restricting domestic demand through the credit crunch. These measures had no effect, and the inflation rate continued to rise, and peaked at 7.30% during the year.

In the second semester, the pressure of commodity prices had eased and there were signs that the level of activity was at a very low pace. In this scenario, the Central Bank initiated a fall in the Selic rate. However, this fall in the Selic rate was not enough for the resumption of economic activity, but the 12-month inflation eased somewhat, closing the year at 6.5%.

For the year 2012, inflation control is uncertain. Market forecasts show inflation around 5.5%, but the level of economic activity is very low and interest rates are still on the decline. The great challenge for policymakers is to reconcile the interest rates to economic growth without to fuel the inflation.

Source: IBGE

No comments:

Post a Comment