By the Blouin News Business staff

Tombini projects a brighter 2013 for Brazil

by in Americas.

Brazilian central bank governor Alexandre Tombini said that the country has “ a low inflation expectation," at an event in New York. Photo: AFP/Getty Images

The governor of the central bank of Brazil Alexandre Tombini said that the country has “a low inflation expectation,” in New York. Photo: AFP/Getty Images

More inflation, less growth has been a familiar theme for Brazil’s economy for more than a year. In January consumer prices were up 6.15% on a year earlier, well above the official 4.5% target. High food prices were largely to blame. But in 2013 things could at last change. Thanks to a larger grain crop, “food inflation will not be as unfavorable as last year,” Alexandre Tombini, the expansive governor of Brazil’s central bank, said in New York Monday.

Tombini has “a low inflation expectation” for this year, 4.8%, down from 2012’s 5.84% but still above target for the third year straight. Consensus forecasts of private economists are that the rate will barely shrink to 5.7%. “The central bank has been clear in recognizing that inflation has been resilient, but we will see it decline in the second half of the year,” he told investors at the Brazilian-American Chamber of Commerce and Americas Society/Council of the Americas, on the latest leg of a global road show to promote inward investment led by Finance Minister Guido Mantega.

Many economists believe that it’s likely that the country’s inflation will get worse before it gets better, prompting speculation that interest rates could be raised in the coming months. The central bank cut the Selic rate ten straight times through October 2012 to a record low of 7.25%, where it has remained. In January it was again kept at that level.

Policy-makers have been confident that that level is the way to bring down inflation without snuffing out GDP growth, down to 0.6% in the third quarter, the most recent published. Lowered interest rates have been a pillar of president’s Dilma Rouseff’s long-term plan to revive the economy.

Brazil’s inflation has been such an important measure that it has distracted the country from the other pressing issue, growth. Tombini argues that the recent slow growth is largely due to supply constraints. “Growth underwent a typical business cycle downturn,” he says.

“Growth is resuming and even though we don’t have the numbers yet, in 2012 there was a clear differentiation between the first and the second half of the year,” he said. The observation was a preview to the official 2012 GDP data released on March 1 that said Brazil’s economy grew just 0.9% in 2012. “In the second half of the year growth was more than 2.5% and markets expect growth over 3%.”

Tombini didn’t give to much attention to the currency war that could potentially explode. “We have other pressing issues. We have learned from the past and we have done moves to cope with this volatility,” he said. Those issues include a presidential election next year, when voters will be looking for more growth and less inflation.