Economy proceeding favourably. Key economic indicators suggest
that the Brazilian economic expansion continues along a promising
trajectory. The National
Statistical Institute (IBGE) reported that seasonally adjusted industrial
production rose by 2.7% in May compared to the same month last year. The May industrial data is a clear indication that companies
are beginning to resume their investment activities. Seasonally adjusted capital goods production expanded by 9.4%
over the same month last year, followed by a more moderate performance in
intermediate goods production of 4.1%.
The most notable expansion occurred in the production of durable
consumer goods, which expanded 18.5% over May 1999.
The National Index of Consumer Expectations elaborated by National
Confederation of Brazilian Industry (CNI) showed that consumer confidence
is recovering with the index rising 3.9% in May over the same month last
year. Even though
unemployment dropped only marginally in May to 7.8% from a high of 8.2% in
March, domestic credit availability and declining interest rates have
positively affected consumption. According
to the Central Bank, seasonally adjusted real retail sales in the São
Paulo metropolitan area grew 12.4% in April over the same month last year. Durable consumer goods sales were up 21.4% for the same
period, while automobile sales expanded 8.7%.
Inflation contained despite economic upturn. While the upcoming government
adjustments to controlled prices will be carefully scrutinized in the
coming months, the July Consensus Forecast survey indicates that
participants remain optimistic about the prospects that this year's
International Monetary Fund inflation target of 6.0% will be met this
year. In May, consumer prices were flat (+0.01%) bringing the
annual rate down to 5.3% from 5.4% in April.
Central Bank lowers benchmark interest rate. Stability in inflationary
expectations for this year prompted the Central Bank Monetary Policy
Committee (COPOM, Comité de Política Monetaria) to lower the
benchmark overnight rate (SELIC) from 18.5% to 17.5%, in its June
meeting. This is the second
rate cut this year. Increased
confidence that the US economic growth trajectory has been tamed
sufficiently by Fed interest rate hikes, expectations that oil prices will
remain contained as a result of the OPEC production expansion and
favourable inflation numbers were the key drivers behind the decision to
further lower interest rates.