March 13, 2013 • 1:46 am 0
February 22, 2013 • 1:40 am 0
Timely measures to give market a boost
August 1, 2012 • 1:54 am 0
In January of this year the theme of emerging markets became more of a primary investment rather than that of an alternative one. Many people ventured toward countries that have had rocket high growth over the last few years such as the BRIC countries of Brazil, Russia, India and China which received the preponderance of excitement in the emerging market approach.
Read full article Mexico the Growth Market
Today, the BRIC countries have been challenged to maintain upward momentum. The simmering down of the American market crisis and the expanding concerns for the Eurozone present a dilemma and are showing the effects. The Institute of International Finance (IIF), a global association of financial institutions, says that “net private capital flows to emerging market economies remain quite volatile and subject to disturbance from the euro area”. According to the research, data capital flows fell in 2011 to $1.03 trillion from $1.09 trillion in 2010 and are expected to fall again this year to $912 billion before rising to $994 billion in 2013.
The woes of the Eurozone monetary crisis have influenced investors to move money out of country and to seek safe haven in securities markets elsewhere. Brazil, Indonesia, China as well as others are no longer experiencing upward momentum and are now even in decline or negative.
However year after year, analysts continue to see strong signs of growth and long term prosperity in Mexico as many of the emerging markets troubles are not being seen in Mexico, in fact quite the opposite.
Brazil with its lucrative energy industry capitalized by the largest South American exchange, has attracted many investors to seek opportunities in Latin America. Brazil has enjoyed the influx of foreign investments and has gone further to encourage more interest from the North by recently lowering some of its staggeringly high tax penalties on returns and additionally allowing the shares of foreign instruments to take more of a part in portfolios of its domestic shareholders. “Investors are more cautious with Brazil,” Gustavo Mendonca, an economist with Oren Investimentos in Sao Paulo said this week. “The country has slowed very sharply and the prospects for long-term growth have gone downhill.”
Policy adjustments invite and attract investments, but many of these actions are late and under pressure by issues developing in other countries such as Spain. On the other hand, the opportunities for a rudimental Northern investor looking South of the Border to Mexico remain solid.
A key factor with Mexico is that it has some of the most definitive metrics that provide the level of transparency needed in a volatile global market. Unlike Brazil, Russia, India or China, Mexico is directly tied to American monetary policy with a correlation that does not exist in other Emerging Market countries and not surprisingly is also growing alongside the American economy.
Is Mexico beyond ridicule and examination? Of course not, but to begin to understand the benefits of investing in Mexico for the short and the long term we should begin with how Mexico plays a key role as a member of NAFTA (North American Free Trade Agreement). The implementation of NAFTA along with close inter-country relationships, ties Mexico’s trade and currency valuation to that of the US and Canada.
For example, in 2010 many believed the US would remain flat for the next two years, but we now see this was not the case. As a result of American performance, Mexico’s markets have also increased working in parallel a framework portfolio managers find affirmative Mexico has also maintained a weak peso over the last ten years. The Mexican peso has been priced at a competitive advantage with China.
Currency rates have helped Mexico realize an economic boom that continues to rise since the 90’s. The move to NAFTA in 1994 could be the key contributing factor for Mexico’s 600 percent increase in sales to the US. With inflation no longer under control in countries like China and Brazil, analysts are discovering that Mexico’s policies have proven successful in weathering many global financial catastrophes.
As opportunities within the developed markets diminish, the Mexican marketplace is standing strong. As a top emerging market for the global investing community, particularly in Latin America, Mexico represents a substantial alternative to Brazil, home of the leading Latin American stock market. Mexico, although not a BRIC country, certainly has more promising economic stability and growth potential than some of the most mature economies. With a clear goal in sight, the local markets in Mexico continue to take measures that enhance liquidity in equities and derivatives trading which provide surety to its financial institutions and reach more investors abroad.
Source: FINAMEX /Dan Watkins, 01.08.2012 firstname.lastname@example.org
July 13, 2012 • 8:13 am 0
MexicoOne of the most attractive emerging markets in the world 13.07.2012 Behind the gory headlines lies a country with strong economic growth and surprisingly prudent management. Here’s why Mexico could be one of the most attractive emerging markets in the world Mexico Growth Prospects Remain Positive Despite Weaker Data 12.07. 2012 Mexico economy seen slowing heading into the second half. Blame the U.S. on this one. Sorry Brazil, Investors Prefer Mexico 10.07.2012 For a growing number of portfolio investors, Brazil has been replaced by Mexico.
- Spain´s Enagas, Elecnor to build $270 mln Mexico gas pipeline from Tlaxcal to Morelos
- Spain´s OHL Surges on Pena Nieto Spending Optimism: Mexico City Mover
- Brazil cuts rate for 8th time as recovery falters
- Brazil Real Declines on Growth Concern, Rate Cut Speculation
- Worst-Performing IPOs Follow Dry Oil Wells of QGEP, HRT: Corporate Brazil
- As Growth Ebbs, Brazil Powers Up Its Bulldozers
- Fitch: Brazilian Airports Rising Despite Bumps
- Time to restructure Brazil’s foreign trade
- Analysis: Latin America’s love affair with China may sour
- Telefonica Latin America Luster Fades on Brazil Slowdown and Mexicos America Movil intensified competition
- Fitch: Outlook Stable for Latin American Infrastructure
- China proposes $10bn loan for Latin America countries
- Argentina Plans Biggest Wind Project With Loan From China
- Argentina’s Emgasud Plans Construction of the 34-Megawatt Biofuel Parana Power Plant
November 17, 2011 • 12:10 am 2
China’s economy has a reputation for being strong and prosperous, but according to a well-known Chinese television personality the country’s Gross Domestic Product is going in reverse.
Larry Lang, chair professor of Finance at the Chinese University of Hong Kong, said in a lecture that he didn’t think was being recorded that the Chinese regime is in a serious economic crisis—on the brink of bankruptcy. In his memorable formulation: every province in China is Greece.
Related Article:Bobsguide - China reduces lenders’ ratio requirements (02.12.2011) EpochTimes – China’s Economy on the Brink of Collaps (Nov.2011) The Guardian – IMF sounds warning on Chinese Banking System (Nov.2011) The restrictions Lang placed on the Oct. 22 speech in Shenyang City, in northern China’s Liaoning Province, included no audio or video recording, and no media. He can be heard saying that people should not post his speech online, or “everyone will look bad,” in the audio that is now on Youtube.
In the unusual, closed-door lecture, Lang gave a frank analysis of the Chinese economy and the censorship that is placed on intellectuals and public figures. “What I’m about to say is all true. But under this system, we are not allowed to speak the truth,” he said.
Despite Lang’s polished appearance on his high-profile TV shows, he said: “Don’t think that we are living in a peaceful time now. Actually the media cannot report anything at all. Those of us who do TV shows are so miserable and frustrated, because we cannot do any programs. As long as something is related to the government, we cannot report about it.”
He said that the regime doesn’t listen to experts, and that Party officials are insufferably arrogant. “If you don’t agree with him, he thinks you are against him,” he said.
Lang’s assessment that the regime is bankrupt was based on five conjectures.
Firstly, that the regime’s debt sits at about 36 trillion yuan (US$5.68 trillion). This calculation is arrived at by adding up Chinese local government debt (between 16 trillion and 19.5 trillion yuan, or US$2.5 trillion and US$3 trillion), and the debt owed by state-owned enterprises (another 16 trillion, he said). But with interest of two trillion per year, he thinks things will unravel quickly.
Secondly, that the regime’s officially published inflation rate of 6.2 percent is fabricated. The real inflation rate is 16 percent, according to Lang.
Thirdly, that there is serious excess capacity in the economy, and that private consumption is only 30 percent of economic activity. Lang said that beginning this July, the Purchasing Managers Index, a measure of the manufacturing industry, plunged to a new low of 50.7. This is an indication, in his view, that China’s economy is in recession.
Fourthly, that the regime’s officially published GDP of 9 percent is also fabricated. According to Lang’s data, China’s GDP has decreased 10 percent. He said that the bloated figures come from the dramatic increase in infrastructure construction, including real estate development, railways, and highways each year (accounting for up to 70 percent of GDP in 2010).
Fifthly, that taxes are too high. Last year, the taxes on Chinese businesses (including direct and indirect taxes) were at 70 percent of earnings. The individual tax rate sits at 81.6 percent, Lang said.
Once the “economic tsunami” starts, the regime will lose credibility and China will become the poorest country in the world, Lang said.
Several commentators have expressed broad agreement with Lang’s analysis.
Professor Frank Xie at the University of South Carolina, Aiken, said that the idea of China going bankrupt isn’t far fetched. Major construction projects have helped inflate the GDP, he says. “On the surface, it is a big number, but inflation is even higher. So in reality, China’s economy is in recession.”
Further, Xie said that official figures shouldn’t be relied on. The regime’s vice premier, Li Keqiang for example, admitted to a U.S. diplomat that he doesn’t believe the statistics produced by lower-level officials, and when he was the governor of Liaoning Province “had to personally see the hard data.”
Cheng Xiaonong, an economist and former aide to ousted Party leader Zhao Ziyang, said that high praise of the “China model” is often made on the basis of the high-visibility construction projects, a big GDP, and much money in foreign reserves. “They pay little attention to things such as whether people’s basic rights are guaranteed, or their living standard has improved or not,” he said.
Behind the fiat control of the economy, which can have the appearance of being efficient, there is enormous waste and corruption, Cheng said. It means that little spending is done on education, welfare, the health system, etc.
Cheng says that for the last decade the Chinese regime has accumulated its wealth primarily by promoting real estate development, buying urban and suburban residential properties at low prices (or simply taking them), and selling them to developers at high prices.
According to Cheng, the goals of regime officials (to enrich themselves and increase their power) are in direct conflict with those of the people–so social injustice expands, and economic propaganda meant to portray the situation as otherwise prevails.
Few scholars inside the country dare to speak as Lang has, Cheng said. And that’s probably because he has a professorship in Hong Kong.
Source: TheEpochTimes, 15.11.2011
September 18, 2011 • 1:18 am 0
Who sets interest rates in Brazil: Is it Central Bank President Alexandre Tombini or the country’s President, Dilma Rousseff? That question hung over financial markets after the Central Bank of Brazil cut the benchmark Selic interest rate by half a point, to 12 percent, on Aug. 31. The move was unexpected: The bank’s rate-setting committee had ratcheted up the Selic at its five previous meetings to combat inflation and had not signaled a change in its stance. Yet Rousseff in an Aug. 30 radio broadcast had said rates should begin to fall as the government curbs spending.
(Interestingly a week later Guido Mantega, Brazil’s finance minister, suddenly proposed a “Bric” rescue package for the eurozone this week, he caught not only other world leaders by surprise but also many of his fellow countrymen.
Even as officials from other members of the so-called Bric grouping – Russia, India and China – said it was the first they heard of the idea, many ordinary Brazilians expressed shock at the notion of bailing out the world’s richest trading bloc. FT 16.09.2011)
The abruptness of the shift in monetary policy left money managers such as Guilherme Figueiredo, director of M. Safra, a São Paulo investment firm, with the impression that Tombini had caved in to political pressure. “This is the worst possible decision our central bank could have made at such a moment,” Figueiredo says. “The loss of credibility is going to be large.” Rousseff’s press office declined to comment when asked about the rate decision.
New data indicate that Tombini may have acted prematurely. On Sept. 6, Brazil’s statistics agency said inflation accelerated to an annualized 7.23 percent in August—its fastest pace since 2005 and well above the 6.5 percent upper end of the target range set by monetary authorities for the full year. In an Aug. 31 statement the central bank defended the rate cut, saying it will help shield the economy from the effects of a “substantial deterioration” in the world growth outlook.
It’s true that Brazil shows signs of cooling. The central bank’s economic activity index shrank in June for the first time since 2008, and business confidence in the second quarter slid to its lowest level since 2009. Economists expect growth to slow to 3.7 percent this year, from 7.5 percent in 2010.
Finance Minister Guido Mantega has pledged that the government won’t resort to fiscal stimulus to spur the economy. Whether Rousseff, who took office on Jan. 1, can discipline the spending habits of the multiparty ruling coalition remains an open question, however. Congress rebelled against her first attempts at frugality by proposing bigger salaries for police officers and an increase in health-care spending. Cutting rates in these circumstances “is really risky, with inflation building and wages set to rise,” says Elson Teles, chief economist at Maxima Asset Management in Rio de Janeiro. The central bank is “weighing such subjective things like whether there’s going to be another global recession. What if it doesn’t happen?”
The bottom line: Brazil’s central bank may have bowed to government pressure for a rate cut, endangering its goal of containing inflation.
July 13, 2011 • 11:57 pm 0
- China has experienced rapid credit-led growth in recent years. This growth has been an important contributor to global economic recovery.
- Many commentators anticipate that the rapid nature of Chinese credit growth, allied to a capital allocation process led by political direction and undertaken at highly subsidized rates of interest, will inevitably end in a credit bust.
- Further, these critics point to the opaque nature of China’s banking system, rapidly growing off-balance-sheet exposures and an overblown real estate sector as evidence of a fragile Sino financial system overdue for a crisis that will, in turn, cripple world growth and extended financial systems elsewhere.
- While we are sympathetic to much of the logic behind these fears, we believe that these concerns float on some flimsy analysis. As one example, we cite the mismatch between the oft-cited story of 65 million empty apartments nationwide in China and the inconvenient truth that market estimates indicate that only 60 million apartments have been completed in the last decade.
- More importantly, we believe that the “panda bears” overlook the fact that much of the expansion in China’s financial balance sheet has been quasi-fiscal lending and that such lending is backed and guaranteed by a system that is experiencing rapid growth in income and starting from a low level of overall debt.
- Domestic savings rates are high — indeed, excessive at over 50% of GDP. While external capital has funded much of the rise in banking system liabilities over the last 12 months, China also runs a current account surplus, is largely domestically funded and lacks many of the vulnerabilities that undid Western credit systems in 2007–08.
- We agree that bad debt levels in China will rise — in fact, in a worst-case scenario, there could be as much as 7 trillion RMB of bad loans in the system at present, according to our estimates. But bank balance sheets are strong, profit growth is subsidized by fixed lending and deposit rates, and economic growth itself should be strong enough to absorb most reasonable estimates of losses without serious challenges to financial system stability.
- Bank deposits are the main source of domestic savings. We are confident that Beijing will seek to avoid social discontent arising from any threat to the security of deposits with vigor and resources that would make Western bailouts appear puny by comparison. Our concern is that savings growth rates will slow over the next few years and that deposit growth will be much more pedestrian than over the last decade. The recent consolidation of data on funding growth under the banner of Total Social Financing (TSF) presents a clearer picture of the efficiency of deposit mobilization in funding growth. Even allowing for shortcomings in methodology, the incremental growth per unit of financing — Financial Incremental Capital Output Ratio, or FICOR, as we term it — has deteriorated over the last decade.
- As a consequence of slower savings rates and reduced FICOR, we expect a slowdown in trend growth over the next few years to 7-8% rather than the 8-10% level of recent times. State-led capital allocation and rate fixing was a feature of both Korea and Japan in the past. In both cases, financial crisis arising from this policy mix was triggered by financial reform. We believe the same holds for China, but will take a number of years to unfold.
Read full report Can China´s Savers save the world
Source: BlackRock / Carral Sierra, 12.07.2011
July 13, 2011 • 11:35 pm 0
China ha experimentado en años recientes un rápido crecimiento impulsado por el crédito, el cual ha sido un factor importante en la recuperación económica global. Sin embargo:
- Muchos analistas anticipan que la rápida condición del crecimiento chino gracias al crédito, junto con un proceso de distribución de capital dirigido por sus políticos y emprendido a tasas de interés altamente subsidiadas, inevitablemente derivará en una caída crediticia.
- Estos comentarios señalan la naturaleza opaca del sistema bancario de China, una rápida exposición de las hojas de balance y un sector inmobiliario inflado, como la evidencia de un sistema financiero frágil susceptible a una crisis que, a su vez, afectará el crecimiento mundial y a otros sistemas financieros.
Opiniones del BlackRock Investment Institute: ¿Puede el Ahorro de China Salvar al Mundo?
- En la nueva publicación del BlackRock Investment Institute, “¿Puede el ahorro de China salvar al mundo? (Can China Savers Save the World?)”, los autores analizan las razones que están en la base de estos temores. Al respecto, afirman que esta inquietud podría estar basada en un análisis débil.
- Asimismo, creen que los llamados “pandas” no consideran el hecho de que gran parte de la expansión de la balanza financiera de China se ha basado en préstamos casi fiscales y que tienen el respaldo y garantía de un sistema que experimenta un rápido crecimiento de su ingreso y cuenta con un nivel bajo de deuda.
- En consecuencia, los autores sugieren que China no sufrirá un colapso financiero, sino a lo sumo un descenso en su potencial y en su tasa de crecimiento.
Adjunto te hacemos llegar el documento completo en inglés en formato PDF. En caso de cualquier duda adicional, quedamos a tu disposición.
Para leer el reporte completo click aqui. Can China´s Savers save the world
Source: Black Rock / Carral Sierra, 12.07.2011
July 2, 2011 • 12:08 am 0
Greek accord might buy some peaceful time
We maintain our negative view on the international market for July. In the US, after a series of weak economic indicators, even worse than initially expected, there is no evidence of a turnaround in the short term, especially while the unemployment rate remains at high levels. The ongoing recovery in Japan, together with a slight reduction in commodity prices and the slight reduction in US interest rates (10-yr bonds) seem to us to be a base for some economic recovery that to date has not yet materialized. We believe that potentially increasing inflation might stress the Chinese market, but this possibility remains uncertain for the moment. In the Euro zone, economic indicators tend to play a secondary role to political tension, as the outcome for the Greek debt remains undefined. The recent measures approved by the parliament enabled only the receipt of a tranche of aid previously negotiated. We expect a temporary ease in this tension, which might pick up shortly as it negotiates a second aid package by September, under uncertain political support from all European countries. The dominant feeling is that Greece has no orthodox solution while it remains under the Euro umbrella and tied to its rules. The biggest fear, however, is not of Greece defaulting, but that it would spread the problem to other countries also on the list of troubled economies.
Despite our negative view for international markets, we believe that July may be less negative than June was, mainly due to the temporary ease that the Greek accord brought. However, tensions should increase with the negotiations for the next agreement, expected by September.
Local inflation likely to continue low
Inflation in July might continue low, although not as low as in June, which confirmed and even surpassed the most optimistic expectations. While in June inflation was slightly negative (according to some of the main indexes), consensus expectations for the IPCA in July are around 0.15-0.20%. This reduction was a result of seasonal factors that might lose effect shortly, with inflation likely to pick up as they do.
Delinquency rates increased slightly in June, but we tend to believe this is not a source of concern because: 1) personal income is likely to show improved figures because of the recently reduced inflation and 2) the amount of late payments, the step before writing off debt, decreased for two months in a row.
We predicted that June’s local positive sentiment based on reduced inflation would overcome a bad international scenario, but this did not materialize. We continue with the same views for July, bad internationally and good locally. This time, however, we believe that the negative mood might continue to prevail.
We changed our portfolio to be more defensive, having in mind our somewhat negative view for the market. We have added Tractebel and Telesp (both with 5% stake), two traditionally defensive names, we reduced weight on Even (from 10% to 5%) and have withdrawn Itaú.
Source: BANIF CVC, 01.07.2011
June 2, 2011 • 1:02 am 0
At best, things should be as bad as predicted
For multiple reasons, we have a negative view on the international market for June. 1) There is evidence of a slowdown in the US economy. 2) In the Euro Zone, following the relatively well made financial aid package for Portugal, the Greek debt problem has become more acute, with evidence of fiscal targets not met and a lack of political will to implement further measures. 3) China has displayed signs of an economic slowdown after strong 1Q figures.
Despite this negative view, we believe in a mild negative evolution of the markets, with no large factors to cause major changes. The market has revised estimates for economic activity downwards and now, in a best-case scenario, we believe in a reality as bad as predicted. The most important single issue to monitor is probably the evolution of the Greek problem, which disruption we believe is certain and dependent on a strengthening of the European financial market to absorb its impact; a condition not yet achieved. A meeting with European leaders will take place on June 24, which might be a catalyst if an announcement of any decision to favor the short term solution for the Greek difficulties occurs.
Local inflation estimates approach zero
Most estimates for June’s inflation are nearing zero. The Top Five survey, for instance, now has 0.06% for the IPCA index. Considering that the reduction is sharp, coming from monthly levels from around 0.8% to near zero (May figure is likely to remain above halfway between one end and the other), we believe that there is still some skepticism in the market of this downward course. With the release of hard data confirming the expectation of low inflation, available around the third week of the month in the form of the previous release of indexes for June, we foresee an increased optimism driving the market prices up.
We believe a materialization of the positive local scenario we predict will have greater influence on the local market than the dimmer international scenario, leading to a rebound in local prices. As inflation has been the most important economic factor monitored, an ease in its pace would cause a wave of optimism.
Having this positive view in mind, we left our previous cautious stance and, to benefit from a rebound in the local stock market, changed our suggested portfolio significantly. We added Copasa and Itau (5% weight each) and increased the weights on Even, Eztec, and Lojas Renner (all from 5% to 10%). Additionally, we withdrew Telesp, Tiete and Tractebel.
Source: BANIF CVC, 01.06.2011
March 5, 2011 • 9:45 am 0
Political tension and increasing international commodity prices
We have seen the rise of commodities prices as a risk of inflation, which ultimately would pose a risk to interest rates. Rising inflation, pushed by costs that would then cause interest rate increases, is unwanted while economic activity does not pick up. Additionally, tensions in North African countries have sent oil prices up as well, which reinforces the scenario of an increase in costs. Brazil – Monthly Allocation – March 2011
The tension in North African countries is likely to be the dominant international event during March. Following the movement started in Egypt, which led to the fall of a long established dictatorship, other countries, with similar political structures, have started having protests, with unpredictable outcomes.
In China, the celebrations of the local New Year halted release of economic data. However, from the data so far released, we see unchanged risks and believe the country suffers from the increase in commodities prices, as does the rest of the world.
Apart from these political and commodities problems, indicators continue to point to an improving economic activity for the US and Europe, although still at a slow pace.
Local risks still relate to inflation
If the political tension does not deteriorate much further, we believe that local problems in Brazil will dominate the mood of investors. The main local ST risks we see are the still unknown extent of the inflation surge and the efficiency of the measures taken.
After the initial optimism at the beginning of the year, we continue to see a deterioration of expectations, which should continue until the wave of price increases comes under control. Additional to these price increases, the minimum wage, an additional important price, is about to be formally indexed. The approval of this year’s minimum wage comes together with a formula for automatic future adjustments, which formalizes a hitherto informal methodology. With this measure, the government reinforces the need to control other sources of inflation. These include other possible budget costs, the increase in interest rates, credit expansion, etc.
The Government has attempted to control inflation through a reduction of economic activity. The risk here is that the measures may cause an excessive economic slowdown and, for instance, bringing GDP growth below 4% this year (while current expectations are of a GDP around 4.5%).
With this scenario, we have changed our portfolio to make it more defensive, more linked to inflation-adjusted revenue companies and less dependent on companies related to credit and GDP growth. We have included HRT with a weight of 5%, and increased Eletropaulo’s weight (to 10 from 5%). We have also reduced the weight of MRV (to 5% from 10%) and withdrawn Hering.
Source: BANIF, 01.03.2011
January 11, 2011 • 10:46 pm 0
December 8, 2010 • 10:36 pm 0
November 8, 2010 • 10:27 pm 0
August 22, 2010 • 12:31 am 0
According to the IPCA-15 index, inflation was -0.05%. The inflation deceleration process, which was initially characterized by a positive shock of food prices and the seasonal favorable behavior of clothing prices, has gradually become broader and longer than originally thought. The inflation outlook points to IPCA reacceleration down the road, but low current inflation is postponing this scenario. In all, the Selic rate is likely to be maintained stable in the next COPOM meeting.
According to the IPCA-15 index, inflation was -0.05% in the 30 days ended in August,13th. Since the end of June, retail inflation, measured by the IPCA and the IPCA-15 indexes, has remained at a very low level, close to zero, and chances are that this will not change in the short term.
The diffusion index rose slightly to 52.9, from 48.7 in the end of July, showing that a larger percentage of items from the inflation basket has faced price increase. However, diffusion´s moving average is declining (see chart on the right), suggesting that inflation is likely to keep decelerating. Also, there is indeed a growing number of groups of goods or services posting deflation or declining inflation. For instance, according to August´s IPCA-15, food at home, furniture, home appliance, electronics, clothing, footwear, textiles, pharmaceuticals and communications posted deflation. Eating out of home, fuel and energy for housing, health services, personal care and recreation are posting significant lowering inflation.
In sum, the inflation deceleration process, which was initially characterized by a positive shock of food prices and the seasonal favorable behavior of clothing prices, has gradually become broader and longer than originally thought. As a result, 12-month core IPCA and services inflation have begun to drop, which is surprising because the level of capacity utilization is close to a record high, unemployment is at a record low, the aggregate wage bill is rising and there are signs of supply shortage in some sectors.
The inflation outlook points to IPCA reacceleration down the road, because of the underlying economic conditions, the fact that wholesale prices have increased, and the high probability that wage negotiations, scheduled for the following months, will lead to real wage increases above productivity gains. Nevertheless, low current inflation is postponing the IPCA reacceleration scenario and, to be fair, weakening it too, as it helps align inflation expectations with the inflation target. In all, August´s IPCA is likely to be around 0.1% and the monetary policy committee – Copom – seems poised to maintain the Selic rate stable in the next meeting, scheduled for September,1st.
Source: Banif – IXE, 20.08.2010 Mauro Schneider – email@example.com