Well, they thought it was going to be bad. But not this bad. Consumer price inflation in Brazil was 0.88 per cent in the month to mid-January and 6.02 per cent over the previous 12 months, the IBGE, the national statistics institute, said on Wednesday.

On Monday, the central bank’s weekly survey of market economists showed inflation expectations were creeping up: the consensus for January had risen to 0.81 per cent from 0.78 per cent a week earlier. But Wednesday’s figure was off the chart.

The biggest rises in the month were in “personal expenses” – where prices rose 1.8 per cent (that’s right, in the month) – and “food and beverages”, up 1.45 per cent.

The picture is distorted by especially big rises in cigarettes, for example, which were 7.05 per cent more expensive in January than in December, and something called “excursions” which were 16.18 per cent more expensive.

But whatever the breakdown (here’s the link again) annual consumer price inflation of 6.02 per cent is something you can really feel. It’s also way over the government’s target of 4.5 per cent a year.

How can prices be rising so quickly in an economy that is close to stagnation? GDP is expected to have grown by less than 1 per cent last year; the consensus for this year is a bit more than 3 per cent.

But the stagnation is all in areas like infrastructure and industry. Investment is way below what’s needed to drive growth. Meanwhile, cheap credit (well, cheap in Brazilian terms) is driving consumption, retails sales and services are booming, and the job market is as tight as a tamborim.

What’s the government to do? The central bank knows cutting rates won’t have any significant impact on investment and productivity, and so is of little use in stimulating growth – it’s not money that’s lacking, but know-how. Anyway, the bank’s job, were it to do it, is to fight inflation, so a rate hike should be more likely than a cut.

An alternative would be to attack the productivity problem by overhauling the tax system and the public sector. But politicians have got so used to ignoring those challenges they no longer seem to think they exist.

Related reading:
Brazil: inflation targetting thrown to the winds, beyondbrics
[snap]: Brazil holds rates steady, beyondbrics
Brazil’s monetary jeitinho, beyondbrics
Brazilian misery, beyondbrics

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