Brazil Inflation

The government in Brazil has taken up the reigns and intends to take on a challenging inflation target. By doing so, it wants its people to know that despite the political unrest, which the country was subjected to lately, the monetary policy would not be affected. Brazil inflation target as anticipated by the experts has been frozen at 4.5 percent for the year 2007. The central bank of Brazil has fixed its lending rate at 11.25 percent for the year 2007. The bank has fixed the lending target at 10.25 percent for the year 2008. The Central bank of Brazil has been missing out on its targets for the last couple of years. It however, hopes to stick to the target this year.

Various targets set by the government in Brazil:

• The debt to GDP ratio (towards end of the year) was raised to 43.4 percent in contrast to 43 percent last year.
• Trade surplus (for 2007) was brought down to USD$40.95 billion from USD$41.
• The value of the currency of Brazil is expected to close at BRLI0.78 against the dollar.
• The National Monetary Council has set Brazil inflation target at 4.5% for the year 2007. The same target has been maintained for the year 2008. The inflation targets should, however not be confused with the bank lending targets.
• Estimated targets for the CPI or the consumer price index for the year 2007 was reduced from 3.83% as compared to 3.86 %.

Changes manifested in the Brazil economy over the last few months:

As per data received from Brazilian Census Bureau, the Brazil inflation rate was 3.4% through October mid. Expansion in gross domestic product or GDP for the year 2007 was marked at 4.7%. In the first six months, gross domestic product increased by 4.9% as compared to the previous year. However, the gross domestic product forecast for the year 2008 was fixed at 4.37% and not 4.4% as decided earlier.

Effects of Brazil inflation on its economy:

As per Brazilian standards, Brazil has fairly witnessed a good economic health, despite the fact that the currency of Brazil- Real is under pressure. Real (currency of Brazil) faces pressure from different angles. The export sector, foreign debts, government expenditures, are all exerting tremendous pressure on the Brazil currency. Often people of Brazil refer to inflation as a dragon. When Brazil inflation is high, it implies that if a person has USD$500, after few days, the person is left with USD$450 and so on. The value of Real decreases and so does its purchasing power .

Inflation adjustment in its nascent form:

In the year 1970, the currency of Brazil was Cruzeiro Novo. It was changed to “novo” and finally cruzeiro. When all these changes were taking place and Brazil inflation was reigning supreme, more and more currency notes started circulating in the market. It was during the era of cruzeiro that all wages became inflation adjusted. This period also witnessed a majestic turnaround in the economy. Most of the foreign banks were investing money in Brazil. The growth in Brazil economy was at 10% (annually). The rate of Brazil inflation was recorded at 10 percent to 300 percent. This period was referred to as “Brazilian Miracle”.