Inflation Forecast Down, Food Price Up: Daily

The government body says prices will start to fall after the current drought-driven short-term rise.

By William Jones, Contributing Reporter

RIO DE JANEIRO, BRAZIL – The president of Brazil’s Central Bank, Alexandre Tombini, said that he is not surprised by the sharp rise in food prices reported from February to March this year, and affirmed that the hike does not alter the monetary authority’s forecast for inflation, which the Central Bank believes will start to fall.

Inflation Forecast Down, Food Price Up, Rio de Janeiro, Brazil News

Alexandre Tombini is under pressure over his interest rate policy, photo by Agência Senado/Flickr Creative Commons License.

The Central Bank’s inflation target is 4.5 percent, with a margin of error of two percent but the government’s chances of achieving that rate was dealt a blow at the end of last month as food prices experiences a distinct spike.

Nevertheless, one of the most prominent members of the government’s banking committee has deemed the increase seasonal and promised that inflation will come down by pledging that “in the coming months we will see lower inflation.”

Food prices have been affected by a severe drought across the country, which has caused a 0.92 percent rise in cost of food between March and February, according to Brazil’s CPI, or consumer price index, which takes into account the price difference of an average basket of goods over a period of time. The increase – the steepest hike for a specific month since 2003 – has experts questioning the Central Bank’s policies and inflation forecast.

“We have worked out that this shock is confined to the short term,” Tombini told reporters in Washington after attending a meeting on the effect of monetary stimulus policies of rich countries in emerging markets. “After evidence of the food inflation, in the coming months we will see that the monthly inflation rates will start to reduce,” the Central Bank’s leader said.

Tombini also defended the Central Bank’s policies from critics. “In every moment, our decisions will take into account all aspects of the macroeconomic scenario and the recent price developments to make the best decisions,” he told reporters.

Read more (in Portuguese).

* The Rio Times Daily Updates feature is offered to help keep you up-to-date with important news as it happens.