Cheaper Food and Ethanol Brings Deflation to Brazil

    Falling prices of ethanol and food are responsible for continued deflation in the city of São Paulo, according to the latest survey by the Fipe (Fundação Instituto de Pesquisas Econômicas -Economic Research Institute Foundation).

    For the third week of June, Fipe found negative inflation of 0.44%. In the second week of June Fipe found negative inflation of 0.50%.

    According to the coordinator of the survey, Paulo Pichetti, prices of foods of all types were down: fresh, semi-industrialized and industrialized.

    As a group, food was down 1.77% in the survey. As for the drop in the price of ethanol, it is directly connected to an increase in supply now that the sugarcane harvest is underway.

    However, Pichetti points out that the tendency is for positive inflation to return, as shown by the difference between the second and third weeks of June (the difference was 0.06 percentage points).

    But he adds that the increase will be small and everything points to 2006 inflation slightly less than in 2005, when in was 4.5% for the year. Pichetti says there is every reason to believe the government will reach its target of 4% inflation for this year.

    Natural Gas Hike

    In a note released yesterday, June 27, Petrobras has confirmed that natural gas imported from Bolivia will be 6% more expensive beginning this Saturday, July 1st, at distributors in Brazil. At natural gas production points in Bolivia the price increase will be around 10%.

    Petrobras also says that any changes in prices for final consumers will be announced at the beginning of July. Prices of natural gas, explains the note, are set based on a basket of fuel prices on international markets.

    ABr

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