Rising Wholesale Prices Bring Brazil Its Worst Inflation in 5 Years

    Store façade in Brazil

    Store façade in Brazil The Brazilian monthly inflation accelerated to its fastest pace in more than five years on rising wholesale prices for manufacturers. The IGP-M (Àndice Geral de Preços – Mercado – General Prices Index – Market), Brazil's broadest measure of consumer, construction and wholesale prices, rose 1.98% in June, up from a 1.61% surge in May, according to the Getúlio Vargas Foundation.

    Monthly wholesale prices, led by a 3.11% surge in raw materials, jumped 2.27% compared to a 2.01% rise the previous month. Compared to June 2007, the IGP-M index rose 13.44%, the highest since October 2003 and more than triples the 3.89% reading of June 2007.

    The IGP-M index has been growing faster than the government's benchmark IPCA (índice Nacional de Preços ao Consumidor Amplo – Extended Consumer Prices National Index) because of rising wholesale prices, which comprise 60% of the index. In the first six months of 2008, the IGP-M index has risen 6.82%, the fastest January-through-June rate since 1999, when the index surged 8.28%.

    Brazilian consumers have been shielded from the worst of rising energy costs because of the government's decision to offset price increases for gasoline with lower taxes at the pump.

    Consumer prices as measured by the IGP-M index jumped 0.89% in June from a month ago, pushing the 12-month rate up to 5.82%, within the government's target range of 4.5% plus or minus 2 percentage points.

    Powered by higher consumer spending, the economy expanded 5.8% in the first quarter. Brazil's GDP has risen 5.76% in the last four quarters, its fastest pace since 1995.

    Brazil's central bank has raised rates twice in three months from a record-low 11.25% to 12.25% in a bid to cool inflation. Market analysts anticipate the benchmark rate or Selic will reach 14.25% by the end of 2008.

    Mercopress

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    • Show Comments (12)

    • dnbaiacu

      Thanks for the insight!
      [quote]my prediction for Brasil is during the summer of 2009 after the outcome of the Municipal elections. My strong recommendation to you is to finish the project you have undertaken in Bahia with your tios and tias before the end of the year. By then you would have a “value added product” (as Ch.c likes to call it!).
      [/quote]

      I am definetley going to follow this advice. That was my timetable anyway, but this gives me further incentive.
      Your other comments about “living outside of your means” , were sobering. Growing up I was pretty amazed by how conscientiously some of my relatives with stable employment actually saved. The “older” ones that is. At least it “looked” that way. Everyone is generally hush hush about their own personal financial matters but eager to know and “exploit” the particulars of others. But before credit was widely available it would be amazing to see fairly large purchased acquired seemingly out of nowhere by those that always cried , “nao tenho condicoes”, I always got the impression that although they cried poor, there was always something stashed away somewhere.
      I really appreciate the above insight. I am going to chat with my uncle about this soon.
      On the stain?,, No news yet, but I will find out on this next trip. I will take a design book with examples of work from Kemiko products and show the customer reps exactly what I am looking for. I will let you know.

    • dnbaiacu

      Joao
      Inflation is everywhere….. We have to get used to it.. Lifestyle adjustments are in order for most of us. I just wonder when the bubble will burst? And for now, at least here in the States there is no end in sight. You literally have to “think” before getting into a car these days. My plane ticket to Brazil next week is and obscene figure I won’t even post. I wonder how long Brazils “economic expansion powered by consumer spending”, will continue? What do you see happening in the months to come with the rate things are going now? Most consumers here ignored all the signs of todays events the past 5-6 years. I wonder with all the global evidence available will Brazilians fall into the same trap?

    • João da Silva

      Ch.c
      [quote]Thank you ! [/quote]

      You are most welcome, Ch.c. I know you are a linguist ,like I am ( :D). Since you said “NO
      Brazil Governemnt ! ” and you are hours ahead of us (3 hours?), let me know what the “junkies” decided.I am about to go to bed and hope you are taking care of the world economy.

      btw, I read what you said about my comments earlier about the “inflation”, Greenspan, etc; Shall respond to you tomorrow. You stay put at home. How is the weather in Geneva? I want a complete report on this also. 😉

    • ch.c.

      Joao and your IBOPE article !
      Thank you !
      I had it and read it 7 hours earlier…..in English….at Bloomberg !

    • ch.c.

      “Tonight we shall get more from your government. You mean U.S. government?
      NO
      Brazil Governemnt !

    • ch.c.

      “Fine. I have been warning since the beginning of 2007,”
      You were right but for the wrong reason.
      From 2004 to 2006…..there was a HUGE price decline in food.
      Grains farmers, chicken-pigs-cattle producers were LOSING their shirts.
      In Brazil they could not repay their loans and thus have made several demonstrations in Brasilia.
      In Brazil, Farm land prices declined by 50 % from the top in 2004 until 2006. In Mato grosso the price decline was up to 72 % !
      Therefore the first 12 months of rising prices were NOT inflationary. It just helped farmers to break even.
      But then, from August 2007, due to the subprime crisis that started, the FED was no longer able to INCREASE the interest rates but had to cut them from 5.25 to 2 % in a rush ! Never in American history were the rates cuts that much and that fast.
      Which creates the actual inflationn !

      P.S. when farmers around the world were losing their shirts and land prices in Brazil went down that much and that fast……it became “obvious” to me that things could not get much worse, regardless of eventually be too early ! And that is when we bought the brazilian farm land !!!!!

      😀 😉

    • ch.c.

      To Joao and your “If you study the history of Latin America, you will find that the high rate of inflation has been chronic. Brasil is no exception.”
      If I am not wrong, Brazil was the one with the MOST inflation !
      Therefore it is not the exception……but the WORST OF ALL !

      Here or elsewhere, a few months ago, someone predicted the following : Lula will allow some messy time by the end of his mandate in 2010. So that….HE will be accaimed again in 2014 ! Unless he changes the constitution like his good friend Chavez has just done.
      Lula is not only addicted to ethanol but also to power. D
      Did he not participated to 3 previous elections before being finally elected ????

      And your ” Then when things go sour, put the blame on that poor fella who came out with some bright and original ideas.” is only half true. Greenspan commited first the error of puting the interests rates too low and then was too slow to increase them.
      Therefore both the financial/real estate bull markets and the actual inflation and real estate disasters are HIS responsibility.

    • João da Silva

      Ch.c
      [quote]I did not warn you of higher inflation for the last 18 months.[/quote]

      Fine. I have been warning since the beginning of 2007, especially about the rising cost of the food items (dairy and poultry products as well as the beef). Probably you missed my comments , because of your intense “cultural” activities in Morocco 😉

      [quote]Lula when elected first was simply lucky that Greenspan lauched a World Economic Recovery in 2003, by puting the lowest interests rates in over 50 years.

      [quote]Tonight we shall get more from your government. [/quote]

      You mean U.S. government? Remember Dnb is an American
      Europe, Latam, Asia and all the world countries benefited by also lowering their rates at the lowest in over 2 generations !
      And that the world got the biggest REAL ESTATE BOOM !
      Funny that NO ONE underline this fact. As usual everyone takes the benefits due their SMART ACTIONS……NOT TO WHAT GREENSPAN DID.
      BUT FUNNY TOO….that now everyone criticize Greenspan being responsible for the Subprime and real estate crisis.[/quote]

      How true!! Spot on. It is easy to claim credit for good things some else did, cross your arms and “caress the navel” without imlementing smart measures to take advantages of the opportunities. Then when things go sour, put the blame on that poor fella who came out with some bright and original ideas. 🙂

      Just to prevent you from going into town to hit the bottle tonight (to show your solidarity with us who are protesting against the “dry law”), I am posting an article for you to analyze:
      [url]http://www.estadao.com.br/nacional/not_nac198167,0.htm[/url]

      We have full support from our friend Forrest, even though he is a teetotaler

      😉 🙁 😥

    • ch.c.

      “Brazilian consumers have been shielded from the worst of rising energy costs because of the government’s decision to offset price increases for gasoline with lower taxes at the pump”
      A joke…but more precisely…..A LIE !

      A few weeks ago there was an article, in this site, that said Petrobras was looking to OBTAIN GOVERNMENT APPROVAL to have a price increase on fuel it sells……THE FIRST INCREASE IN 3 YEARS (since 2005).

      Therefore you can see that “decision to offset price increases for gasoline with lower taxes at the pumpÀ‚£”……IS A TYPICAL BRAZILIAN LIE !

      To Joao :
      I did not warn you of higher inflation for the last 18 months. But only since a few weeks ago, when I sold my Brazilian bonds after the Central Bank increased the Selic rate for the first time. CHANGE IN TREND….. if you remember my statements ! And in a change in trend….it is only the FIRST increase/reduction…within a serie…that no one can predict the end.
      Today, things are getting worse, if you saw the details.
      Tonight we shall get more from your government.

      To dnbaiacu :
      Dont try to predict things as said above. Politic has nothing to do with interests rate. Lula when elected first was simply lucky that Greenspan lauched a World Economic Recovery in 2003, by puting the lowest interests rates in over 50 years.
      Europe, Latam, Asia and all the world countries benefited by also lowering their rates at the lowest in over 2 generations !
      And that the world got the biggest REAL ESTATE BOOM !
      Funny that NO ONE underline this fact. As usual everyone takes the benefits due their SMART ACTIONS……NOT TO WHAT GREENSPAN DID.
      BUT FUNNY TOO….that now everyone criticize Greenspan being responsible for the Subprime and real estate crisis.
      Tonight we shall get more from your government.

      One excess always ends up by another opposite excess !!!! That is humans behavior !

      As to value added products :
      Yesssss…but it depends what kind of added value. If one adds a low value added product he is not going to last very long. World competition, trade barriers, politic will take care of it.
      But finding a niche market in the HIGH END is what produces the highest profits margins.
      Concerning “our coffee”, there are prices much higher than ours. Some beans are selling at US$ 160.- PER POUND but for just one or two sacs. I saw coffee beans selling at US$ 130.- per pound but only 500 pounds available annually.
      Therefore this is not commercially viable !
      As I said a few times we are trying to be the Rolex of the coffee, but Rolex is by far not the most expensive.
      But still expensive enough and profitable enough. And more importantly….IN COMMERCIAL QUANTITIES TOTALLING BETWEEN
      28000 – 35000 sacs annually !

      Also remember my eventual long term project in HAM !
      PATA NEGRA 3 jOTAS (maximum 5 jotas) is sold retail at around US$ 400.- per KILO.
      Half wholesale (4 – 7 kgs) cost between US$ 60.- to 150.- per kILO….depending if it is sold boned, deboned or sliced.

      True and real prices !

      😀 😉 😀 😉

    • João da Silva

      dnbaiacu
      [quote]On the stain?,, No news yet, but I will find out on this next trip. I will take a design book with examples of work from Kemiko products and show the customer reps exactly what I am looking for. I will let you know.[/quote]

      Sorry, I forgot to provide with another info. I did get in touch with Sayerlack , another company . Their local rep could not furnish much details on the concrete stain. But he did give me the phone number for their head office. It is 0800-702-6666. It is a toll free number and I suggest that your contractor or tio call and find if they manufacture or import the stain.

      btw, I want you to finish your project as per your original specs, because I liked the idea
      🙂

    • João da Silva

      dnbaiacu
      [quote]I wonder with all the global evidence available will Brazilians fall into the same trap?[/quote]

      My short answer is: They are already in the trap and enjoy being there!

      From many intelligent comments you have posted on this blog, I could make out that you (like me) belong to the segment of the society that thinks ” Do not spend more than you earn”. Unfortunately, many Brasilians do not think that way (for that matter, Latin Americans in general) and the governments do not set example. If you study the history of Latin America, you will find that the high rate of inflation has been chronic. Brasil is no exception. Many still believe that the high inflation rate can be eliminated by Presidential decrees or by altering methodology to calculate it!

      As for your question as when the bubble would burst, my prediction for Brasil is during the summer of 2009 after the outcome of the Municipal elections. My strong recommendation to you is to finish the project you have undertaken in Bahia with your tios and tias before the end of the year. By then you would have a “value added product” (as Ch.c likes to call it!).

      Any further news on concrete stain? I did visit a store on Friday to check about it, but did not make any progress.

    • João da Silva

      Rising Wholesale Prices Bring Brazil Its Worst Inflation in 5 Years
      We, the bloggers in this site (lead by me and ably assisted by Ch.c) have been warning the fellas at the “Newsroom” for the past 18 months about this issue. Nobody paid any attention to us.We are no longer responsible for the inflation. 😀

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