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Economists call Brazil’s plans to defeat the its worst inflation threat in a decade too little and too late.
Roberto Luis Troster at Delta Consulting said it will not work because the central bank waited too long to act, while inflation has its own dynamic as producers are already raising prices, and predicts 7% inflation by the end of the 2013.
Budget cuts won’t be enough to counterbalance the higher interest rates, which push up the cost of repaying government debt.
Marcelo Carvalho at BNP Paribas said the policy is contradictory, and while the central bank is contracting, the fiscal side is not.
Mansueto Almeida at the Applied Economic Studies Institute said attacking operating costs is not the solution because operating costs are not the problem: the problem is mandatory benefit payments tied directly to the minimum salary. Mansueto said from 1992 to 2012, spending on retirement benefits rose from 5.5% of GDP to 7.2% while welfare spending rose from 0.6% of GDP to 2.1% – we cannot arrest the rise in government spending without altering the minimum salary policy.
Read the full article at http://blogs.wsj.com/economics/2013/07/16/brazilian-strategy-to-battle-inflation-faces-skepticism/
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