Brazil GDP grows at half forecasted pace as investment dives

Inflation Risk

Even as the economy struggles to revive --economists surveyed by Bloomberg are forecasting 1.5 percent growth this year -- inflation is quickening. Consumer prices as measured by the IPCA index rose 5.45 percent in October from a year ago, and inflation is projected to stay above the government’s 4.5 percent target through at least 2013, according to the latest central bank survey.

Government attempts to weaken the real, which has fallen 11 percent against the dollar this year, more than any of the 16 major currencies tracked by Bloomberg, could exacerbate the price pressures, said Carlos Thadeu de Freitas Gomes, chief economist at the Rio de Janeiro-based National Commerce Confederation.

The central bank has responded to the price threat by ending a rate cut cycle initiated in August 2011 that was the most aggressive by any Group of 20 nation. The bank, in deciding this week to leave its benchmark rate unchanged at 7.25 percent, pledged to keep monetary conditions stable for a “prolonged period.”

“The government is looking at growth, and that means accepting higher inflation in the short term,” said Freitas, a former central bank director. “If inflation passes 6 percent, I think the bank will stop looking at growth and will turn to inflation.”

Bloomberg News

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