Three central bank rate increases since April to bring inflation down from a three-year high are starting to curb household spending and reduce earnings. Inflation accelerated to 6.37 percent in the 12-months through July from an eight-year low of 2.96 percent in March 2007 on higher food prices, cutting into workers' income.
Despite the slowdown retail sales in the first six months of 2008 expanded 10.6 percent, the fastest pace since the statistics agency began keeping records in 2001.
3 comments:
Brazil is raising rates at the same time that the rest of the world is slowing.
Therefore, can it be determined whether retail slowdown is due to the slightly higher interest rates, or the overall slowing of everyone else?
Hi
"Therefore, can it be determined whether retail slowdown is due to the slightly higher interest rates, or the overall slowing of everyone else?"
No. Fair point. Part of the situation is a decline in the demand for Brazilian exports, although the rising vlue of the real is as much responsible for that as anything.
But Brazil is not an export dependent economy in the way China or Germany or Japan are. So you are not so dependent on what happens to your external customers when you are largely driven by internal consumption.
Let's put it this way. If the central bank get inflation back under control and then start to loosen monetary policy (some time in 2009) while the OECD economies are still struggling with stagflation and the effects of the credit crunch, then there is a good possibility that Brazil (and India etc) can then accelerate again, regardless of what is happening elsewhere. These economies are now more dependent on their own internal momentum than they are on external factors. That at least is my opinion.
Hi,
I would just like to clarify and re-inforce what I said above, since I do think the point is an important one the more I think about it.
Global growth has been sustained since the August 2007 financial turmoil in the developed economies by a rapid expansion in some key emerging economies.
These economies have not had a severe credit crunch as their citizens and their governments are not - by and large - over leveraged, and property prices have a long run upwards ahead of them, as do their currencies.
These economies are now slowing however, becuas of the resource constraint - basically food and energy - and the inflation this produces, and the fact that the relevant central banks - in the serious emerging economies like Brazil, India, Chile, Peru, Thailand, Indonesia etc, are busily tightening monetary policy to stop an inflation spiral.
So yes, domestic demand is slowing because of cb tightening, and not because of a slowdown in the US, which actually helps these economies because the price of oil is coming down, although of course, in the specoific case of Brazil this distinction is going to become increasingly blurred by the fact that Brazil is in the process of becoming an oil driven superpower.
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