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January 8, 2016 5:16 pm
Brazil’s inflation rate shot above 10 per cent in 2015, missing the central bank’s target for the first time since 2003 as the country struggles to emerge from one of its worstpolitical and economic crises in a century.
The IPCA consumer prices index finished last year at 10.67 per cent — over 4 percentage points higher than the 6.5 per cent upper limit of the central bank’s target range and the highest year-end rate since 2002.
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IN LATIN AMERICA & CARIBBEAN
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Friday’s data add to concern that Brazil’s economic boom of five years ago represented a fleeting moment of success in an otherwise turbulent history, rather than the beginning of a new era of prosperity and global influence for Latin America’s largest country.
Central bank president Alexandre Tombini is now faced with the awkward task of writing an open letter to Brazil’s new finance minister, Nelson Barbosa, explaining what went wrong and how prices overshot the target. Mr Tombini had also been tipped for the finance job when Joaquim Levy resigned last month.
After years of lavish government spending and stimulus packages, Mr Levy — a former banker — was brought in early last year to get Brazil’s finances back on track, but met tough resistance from a rebellious Congress. A vast corruption scandal at state-controlled oil company Petrobras has led to bitter infighting among the coalition of President Dilma Rousseff, who herself is facing impeachment proceedings for allegedly disguising Brazil's deficit with accounting tricks.
Standard & Poor's downgraded Brazil's credit rating to junk in September, followed by Fitch in December.
“Faced with a sharp deterioration in its terms of trade and an overhang of private and public debt, the uncomfortable truth is that there is relatively little Brazil can do to bolster demand,” said Neil Shearing, economist at Capital Economics. “At this stage, the least painful option is to probably try and regain some of the confidence of investors that has been lost in the chaos of the past year.”
Meanwhile, fears are growing that Ms Rousseff may bow to pressure from the far-left of her ruling Workers’ party for looser monetary policy in exchange for their support in the impeachment vote. While not technically independent, Brazil’s central bank enjoys informal autonomy and has raised interest rates aggressively to 14.25 per cent to try to tame inflation.
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