The IPCA index which measures consumer prices showed a rise in the inflation rates on food prices in Brazil, today. The rise is the largest the country has seen in two years (since October of 2005.) It rose 0.74 per cent in the month of December. In November of 2007, it rose by 0.38 per cent, a moderate increase. The current near doubling of the rise is worrisome to many economists. The annual rate has been pushed to 4.46 per cent.
This inflation increase will likely cut the possibility of additional rate cuts by policy makers here. The current cuts stopped in October due to fears of increasing inflation. Economic growth is increases as is annual inflation.
The reductions in the overnight rate is unlikely, reports said. Currently the rate is holding at 11.25 per cent, which is a record low. Additionally, there may be a need to increase rates throughout the course of 2008 to combat inflation.
The main push behind inflation is food prices. They accounted for most of the increase by climbing 2.1 per cent in the last month of the year. This is the largest gain they have seen since the beginning of 2003. According to Silvio Campos Neto who is chief economist at Banco Schahin in Sao Paulo, "We're still going to see food pressuring inflation this year, but less than in 2007." He added that he expects the IPCA index to rise 4.3 per cent in 2008.
Lenders see an increase likely in rates by March of 2008, with some such as Banco Itau Olding Financeira SA expecting rates to high 12.75 by the end of 2008.
