Food Prices Fall in Brazil and President Rousseff Gives a Sigh of Relief

    Dilma Rousseff

    Dilma RousseffBrazilian President Dilma Rousseff has been helped in her efforts to tame inflation by the first decline in food prices in two years. Prices as measured by the benchmark IPCA index rose 0.03% in July and more encouraging with prospects for prices to remain unchanged.

    Cheaper food costs, as well as declines for transportation and clothing, lowered 12-month inflation, which had exceeded the 6.5% upper limit of the government’s target range, to 6.27%.

    Food prices dropped 0.33% in July, clothing prices fell 0.39% and transportation costs contracted 0.66%, the Rio de Janeiro-based statistics agency said.

    Rousseff celebrated the news saying that the IPCA index shows inflation is under control and has been systematically falling.

    Likewise “IPCA indicates that food prices are contained in the 18 capitals surveyed, which means the basic food basket prices are down. I would say that inflation is now entirely under control, with the lowest showings of this mandate,” said the Brazilian president during a visit outside the capital Brasilia.

    Finance Minister Guido Mantega was equally happy saying it shows that inflation remains under control in Brazil and the latest stats also show the economy begins to pick up.

    The reading can be considered an achievement since the Real has plunged nearly 13% over the past three months, although a month long wave of street protests over rising bus fares and the quality of public services could mean further trouble ahead.

    The weakening Brazilian currency led the government to cut tariffs this month on more than 100 imported products, including basic materials such as steel.

    The central bank also raised the benchmark rate by 50 basis points to 8.5% in July following a 75-basis-point boost between April and May. Traders expect policy makers to raise rates to 9% this month.

    Economists expect inflation to accelerate to 5.87% in 2014 from 5.75% this year, according to the median forecast in a central bank survey published this week.

    Ideology in Mercosur

    “Until when will we allow ideology to prevail over economics, markets, competitiveness grounding the great vessel of Brazilian trade in the port of little regional pretensions”, asks Katia Abreu in a column published in Folha de S Paulo openly criticizing the administration of Dilma Rousseff for its Mercosur policy and the results of the recent Montevideo summit.

    Katia Abreu is a Senator but equally important the most relevant and influential farmers’ leader in Brazil, an industry that represents the most dynamic sector of the country’s economy and together with mineral account for 65% of Brazil’s exports.

    Senator Abreu writes that at the last Mercosur summit in Montevideo once again political issues prevailed, such as US espionage, the closing of air space for the Bolivian presidency aircraft and the Argentine sovereignty demand over the Malvinas Islands.

    “Sure, they are important but trade negotiations capable of launching activities that create wealth, jobs and make the country grow, did not advance. Brazilian diplomacy yet again lost another golden opportunity to discuss trade and markets”.

    Likewise the final declarations supported the conclusion of the World Trade Organization Doha Round stalled since 2008, continuing negotiations with the EU, but not a word about the difficulties encountered to agree on a Mercosur common proposal to present before Brussels.

    “The summit underlined that the current target of the block is to create a ‘common society’ and that ‘integration can’t be the daughter of markets’. It’s hard to agree with such argument because markets create wealth”

    Senator Abreu adds that positive inter-block trade stats were displayed showing that since the creation of Mercosur (1991) trade has jumped 12 fold while with the rest of the world eight fold. But the stats also show the magnitude of the erroneous approach: Brazil/Mercosur trade in 2011 was 53bn dollars and 9% less in 2012, while with the rest of the world it reached 429bn dollars.

    Mercosur trade with the world in 2011 was 824bn dollars, less that 4,6% of the overall global 17.8 trillion dollars. Further more there was no mention to what could have happened if the ALCA (Free trade of the Americas) proposed in 1994 and dumped in 2005, had gone forward. The US which already anticipated the surge of China, had proposed the creation of a market of 850 million consumers and a GDP, seven times that of Mercosur.

    But even without ALCA, Mercosur trade could have a far better performance if the Southern Cone countries opened their markets.

    “I agree with Uruguayan president Jose Mujica who complained ‘we keep talking about free trade, because we don’t have free trade’, and strongly supports making effective Mercosur agreements and opening to China, the main trade partner of Latinamerica”.

    Senator Abreu added that bilateral and regional free trade agreements are dividing the Americas in Atlantic and Pacific, “and we are the only ones that keep reassessing strategies of trade integration. When will we learn to separate political and trade agendas?”

    China is a notorious example of economic and trade pragmatism: it implements a ‘Socialism with Chinese characteristics” which in a decade of double digit growth ensured international insertion and now represents over 11% of world trade, points out the farmers’ leader.

    And “here in Brazil our capitalism with Brazilian characteristics is leading us straight to isolation. We have no time to lose, in the first half of the year Brazil witnessed the worst performance of our trade balance since 1993”.

    Mercopress

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    • sTEPHEN

      Unlikely to recover significantly
      USD-BRL Brazil: Unlikely to recover significantly
      1.00
      1.50
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      2.50
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      3.50
      4.00
      Jan-02
      Jan-03
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      1.00
      1.50
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       We view the recent BRL weakness as likely to be permanent.
      Despite the recent rise in domestic yields – coming both from
      interest rate hikes and removal of the 6% IOF tax – we still find
      little value in the BRL curve. Balance of payments is now
      looking much weaker, with net outflows likely this year, and at
      the same time disappointing growth and still-high inflation
      presents a poor mix for the economy.
       On top of this, recent protests illustrate rising frustration with
      the government, which have been reflected in a rapid
      deterioration in the president’s popularity.
       In all therefore, we see little reason to be particularly optimistic
      for the BRL and now forecast the currency to end the year at
      2.30/USD and next year at 2.40/USD. Intervention to defend
      the currency will likely continue, but this has proved only
      effective in slowing, not reversing, the BRL’s decline.

      sOURCE. BLOOMBERG

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