4:36 pm ET May 8, 2014
Some Brazilians have been wondering whether helping the poor could stoke an already irked beast: inflation.
The central bank seems to think the answer is no.
Brazil’s President, Dilma Rousseff, announced last month that a key income-distribution program will increase by 10% the monthly payments it grants to the extremely poor.
The program, known as Bolsa Familia, is prized by advocates for reducing Brazil’s infamous social gap and for bringing millions out of poverty and into a new consumer class.
But critics say it creates new demand in the economy, which could fuel inflation. The increase in the monthly stipend was quickly seen as a possible reason for the central bank to step up borrowing costs, right when Brazilian consumers were hoping for a break.
“Our hypothesis is that the government’s fiscal performance will be neutral regarding its impact on prices,” central bank Economy Director Carlos Hamilton Araújo said Thursday, meaning that public spending is unlikely to get in the way of fighting inflation this year.
Mr. Araújo avoided any comments specifically about Bolsa Familia. He said his remarks were about fiscal policy overall, in a possible nod to government promises that any increase in public spending will be matched by either tax increases or cost cuts, so that fiscal targets are met.
His comments come at a time when most analysts expect the central bank to stop raising its basic interest rate known as Selic.
The bank has increased the Selic by 3.75 percentage points since April 2013 to 11%, in an attempt to bring consumer-price index IPCA down to 4.5%, but the index has stubbornly remained at around 6%.
The next two-day monetary-policy meeting is scheduled for May 27.
Mr. Araújo cited the interest-rate increases already done and a slowdown in both consumer credit and the labor market as factors that should ease inflation in the next few months. But he swerved around questions about the monetary policy, saying any decision will depend on the group of eight directors set to meet later this month.
The central banker also mentioned the exchange rate as a positive factor for inflation. The Brazilian real has strengthened versus the dollar, reducing any pressure imports may have on prices.
Brazil’s currency market has been influenced by a program started late last year, through which the central bank offers investors a path to exit their bets on the real as they see fit. The bank holds daily auctions of future contracts in a predictable schedule set to finish last December but that was extended to the end of June.