By Dom Phillips
The news that broke on Oct. 7 wasn't what the government, the central bank, or anyone else wanted to hear in a country as increasingly expensive as Brazil.
"Official inflation went up 0.53 percent in September and hit a high of 7.31 percent in 12 months, overtaking the target roof of 6.5 percent for the sixth consecutive month," said Exame, a financial magazine. The magazine illustrated its story with a photo of a worried-looking Alexandre Tombini, president of Brazil's central bank, explaining himself at a lectern.
As well he might. The worrisome inflation figure came just weeks after the central bank's controversial decision on Aug. 31 to reduce interest rates by a half point, to 12 percent. At the time, the bank's policymakers argued that the risks of an international slowdown outweighed domestic inflation concerns, and Tombini said he expected inflation to slow in September.
Instead, prices climbed 0.53 percent, compared to 0.37 percent the previous month. Newspapers were unforgiving. As the daily Folha de Sao Paulo said:
Prices continued going up in force in September, feeding doubts among economists about the strategy adopted by the central bank to control inflation and maintain it inside the target established by the government.
The paper added that airplane tickets had climbed 23 percent and that the labor market continued to heat up.
On Oct. 9, Tombini was the subject of a full-page interview in the same paper. It made news across Brazilian media. When asked if the central bank was now accepting accelerating inflation in a bid to protect economic growth, he came out fighting:
"The central bank holds as a matter of principle that the inflation versus growth dilemma is a false dilemma. You don't grow more because you have inflation. What happened in the world is that inflation went up in all countries."
Tombini then made a prediction: "The horizon is December 2012, but in October inflation accumulated over 12 months is going to begin to retreat to 0.30 percent, a little more or a little less." The overall target for inflation remained 4.5 percent, he added.
Writing on the economics blog of Rio de Janeiro's O Globo newspaper, Valeria Maniero said that the numbers were "not good" and that service-industry inflation figures were even more worrying. She then shone a few rays of light amidst the gloom.
"The good news is that this inflation, related to the increase of earnings and of jobs, should decelerate a little in the 12 months accumulated toward the end of the year," she wrote, citing Brazilian analysts.
Still, concerns are rampant that there will be a return to Brazil's three decades of soaring, uncontrolled inflation, which ended in 1994 with the long-term "Plano Real," or Real Plan, which brought in a new, more stable currency. The 1980s were dubbed the "Lost Decade" -- in 1989, accumulated inflation reached 1,782 percent.
Writing on the blog Alem de Economia on Oct. 8, the economist Paulo Daniel was keen to allay these anxieties:
Once again come issues of inflation or the risk of an inflationary surge. As I have affirmed and reaffirmed in previous posts, we are not passing through an inflationary risk, we are a long way from this. This means that we have increased our commercial, financial and economic relationships. Besides which, it has shown everyone that the current stage is not to be combated with increased interest rates. An important warning is that this government headed by President Dilma Rousseff has a clear commitment to economic growth and development, with the increase of public and private investments, the generation of jobs and income, but without neglecting inflation.
Such arguments may be little comfort to the average Brazilian in the marketplace. In media large and small, tales of rising prices, and rising anxiety, are proliferating.
The Sao Paulo tabloid Agora addressed inflation on Oct. 9, focusing on small businesses:
At each change of collection, the businessman Jean Makdissi Jr, 34, owner of the Intima Store, readjusts by 4 percent the prices of the lingerie he sells. At the end of this year, however, he is planning an increase over inflation and the cost of labor. Like Makdissi Jr, 42 percent of Brazilian businessmen plan to readjust their prices in the next 12 months.
The local newspaper A Cidade, from the city of Ribeirao Preto, expressed similar concerns the same day. "Prices have already gone up more than inflation in Ribeirao Preto," it said, "20 percent for a `big liter' of beer and 45 percent for shampoo."
TV Anhanguera, a TV Globo affiliate in the state of Goias, had aired a report on Oct. 6 -- the day before the new inflation figure was announced -- on soaring local food prices. As presenter Brenda Freitas said:
When you go to the supermarket, the impression that the housewife or consumer has is that everything is getting more expensive every day.
On Oct.10, the central bank's own Focus Bulletin adjusted its inflation estimates for 2012 upward, to 5.59 percent from 5.53 percent the previous week. The pressure on Tombini isn't going to ease any time soon.
(Dom Phillips is the Sao Paulo correspondent for World View. The opinions expressed are his own.)
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-0- Oct/12/2011 19:45 GMT