Brazil: Inflation and growth

In an exclusive, long interview published in O Estado de São Paulo on 19th June, Central Bank president Alexandre Tombini, six months into the job, asserts that "it is possible to take back inflation from 6.55 per cent per annum to the target [4.5 per cent in 2012 and 2013] while the economy is growing."

This was the central issue opposing Henrique Meirelles and Guido Mantega in President Lula's second term. Tombini is now in effect aligning himself with the latter.

The Central Bank president said that the presi­dent's economic team carries out a consistent, comprehensive, and unified strategy, comprising credit, monetary policy, foreign investment, and fiscal adjustment. However, the minutes of the most recent Copom meeting indicate that the Central Bank is very cautious indeed about inflation, and willing to raise the Selic interest rate once again.

The official inflation target for 2011 and 2012 is 4.5 per cent of GDP, with a fluctuation of up to 2 per cent. In 2013, what will it be? Econo­mists are divided, and their estimates vary between 2 and 3 per cent.

Notwithstanding warnings from the Central Bank, and on the very same day that Copom warned the government against the expansion of credit, Brazilian National Development Bank (BNDES) received an injection of R$30 billion from the Treasury on 16th June.

So much for consistency in economic policy.

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© 2011 Menas Associates