Brazil’s ‘disregard’ for inflation in context

Earlier this week an interview with Maílson de Nobrega in O Estado de São Paulo was cited in this blog pointing out that there may be new economic model in Brazil that is setting aside inflation targeting. Some confirmation of has come from the Banco Central in a Reuters article, which says that meeting the country’s inflation targets this year would be too costly.

Does this mean Brazil is returning to run-away inflation and the need to purchase high-value consumer durables to maintain equity? (Stories about of people in the late 80’s and early 90’s buying multiple washing machines on a Friday and selling them on a Monday to prevent cash payments on withering away to nothing over the weeked).

In a word: no.

The Banco Central admits it will miss the targeted inflation rate of 4.5%. It expects annual inflation for 2012 to be 5.2%. Call them optimistic and pessimistically round up to the whole number. That’s still only 6%. A bit higher than Australia’s official rate, but really not that shattering provided officials don’t get complacent and let things really slide.

Inflation targeting may no longer be the primary Banco Central policy tool, but it still appears to be mighty important to overall macroeconomic policy-making.

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