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Central
Bank raises inflation target. The currency depreciation
combined with prospects for heightened economic activity has begun to
raise concerns about rising inflation. The mid-March consumer price
index (IBGE-IPCA 15), which covers price increases for the first half of
the month, increased 0.36% over last month, down from a 0.50% increase in
February. Primarily rising health and education costs drove the
price increase. This month’s Consensus Forecast indicates that
prices rose 0.33% in March, which would bring the annual inflation rate to
6.4%, a 0.1 percentage point notch above the February figure. As a
result of rising inflationary pressures, the Central Bank raised its
inflation target for this year from 3.9% to 4.8% on 30 March.
Monetary authorities claimed that the higher than expected inflation in
the first two months of the year, robust domestic demand and exchange rate
weakening warranted the revision. However, the decision to hike this
year’s inflation target also undermines the credibility gained via the
interest rate hike in mid-March and raises the question to what extent the
Central Bank is committed to adopting the necessary monetary measures to
meet stated inflation targets. Participants appear not to have
factored the revision into this year’s inflation forecast yet.
Even though this month’s Consensus Forecast for inflation was bumped up
0.2 percentage points over last month, inflation is expected to decline
towards the end of the year, reaching 4.5%.
Argentina
spill-over heightens external balance concerns. According
to government data, the trade balance again registered a deficit in March
(US$ 279 million), following the US$ 80 million surplus registered in
February. As a result, the annual deficit rose to US$ 1.35 billion
with imports growing 15.3% over the same month last year, compared to a
13.6% increase in exports. Panellists have again revised trade
deficit forecast upward from US$ 1.3 billion last month to US$ 1.5 billion
in this month’s Consensus Forecast – a good distance from the
government’s projection of a US$ 1.0 billion trade surplus for this
year.
Note:
The above text is an abridged version of the LatinFocus Consensus Forecast
briefing on Brazil. For more details please click here.
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