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Growth
picking up further momentum. Economic activity continues
to gain speed, following the healthy 3.9% Gross Domestic Product (GDP)
expansion registered in the second quarter of this year. According
to the Fundacação Instituto de Pesquisas Econômicas (FIPE), the
seasonally adjusted monthly indicator of economic activity (IMEC), which
monitors economic performance in São Paulo, was up 7.6% in July over the
same month last year. The IMEC further shows that consumption is
experiencing a strong rebound. The key consumption-related indicator
of the IMEC registered an 11.2% increase in July over the same month last
year and electricity consumption grew 4.5% for the same period.
Favourable
export conditions and growing domestic demand are providing a strong push
for industry.
According to the National Statistical Institute (IBGE), seasonally
adjusted industrial production expanded 8.5% in July over the same month
last year.
Mechanical and transport equipment production registered the
strongest growth rates of 22.0% and 27.2% respectively.
Electrical equipment, furniture and rubber production also expanded
at healthy double-digit growth rates.
Interest
rates remain unchanged as Central Bank monitors inflation.
In its August meeting the Central Bank Monetary Policy Committee (COPOM,
Comité de Política Monetaria) left the benchmark overnight rate (SELIC)
unchanged following three consecutive cuts since June, which lowered the
rate from 18.5% in May to 16.5% in August. Price pressures resulting
from utility rate hikes and upward adjustments in state fuel prices to
accommodate higher oil prices are likely to affect August and September
inflation data and as a result the COPOM has decided to forestall further
easing until the results are known. While IBGE has not yet released
August data, figures from other sources indicate that price pressures
augmented in August. According to FIPE, consumer prices in São
Paulo rose 1.5% over July, which is equivalent to an annual rate of 20.3%.
Thus, on an annual basis prices increased 8.1% over August 1999, the
highest level since the seasonal spike over the Christmas holidays.
High oil prices and crop damage from a hard winter were the key drivers
behind the large hike in August consumer prices. Transportation
prices increased 19.1% over the same month last year, while food prices
added 8.8% over August 1999. Given the strong upward push in prices
and recent historic highs in oil prices, the Central Bank is likely to
maintain a more cautious stance on interest rates.
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