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Thursday, May 29, 2008

Brazil Wholesale Inflation May 2008

Brazil's broadest price index rose at the highest monthly rate in five months in May, increasing speculation that the central bank will raise interest rates for a second straight time at its meeting next week. Wholesale, consumer and construction prices, as measured by the IGP-M price index, rose 1.61 percent in May, the Rio de Janeiro-based Getulio Vargas Foundation said today on its Web site.

Consumer price increases, as measured by the government's IPCA, quickened to 5.25 percent in the 12-month period to mid- May, the fastest pace in more than two years, the national statistics agency said yesterday.

Central Bank President Henrique Meirelles, in testimony to the Brazilian Congress yesterday, said wholesale prices were rising faster than overall inflation and that policy makers have acted preemptively to prevent the increases from spreading to other parts of the economy. .

Meirelles' comments were more evidence that policymakers will raise their benchmark interest rate for the second consecutive time, possibly by 50 basis points to 12.25 percent when they meet next week.The central bank raised the benchmark rate to 11.75 percent from 11.25 percent for the first time in three years last month.

1 comment:

Anonymous said...

After having visited Rio three times and Buenos Aires most recently, I've decided that there is just too much money flowing around everywhere.

Hotels averaging $100+/night (low-mid range), meals costing $20+/pp, condos in Copacabana going for $300k+, etc.

I realize these are distinct tourist destinations, but these are still third-world countries where the typical resident earns less than $500/month.

What I'm getting at is that much of this inflation is being bid up at the margin -- the upper margin. If/when that cools (not too many tourists are going to pay $1500+ for their plane tickets in the future if $100+ oil is here to stay and the value of their houses continue to go down), I expect there will be an unwinding.

This is where I start to give credence to those predicting a global DEflation coming up.. If easy money is inflationary, the opposite will be true when that easy money goes away. It may not happen this year, or next, but it will eventually, imo.