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Fiscal Expansion Constraining Monetary Policy
BRAZIL ECONOMICS · Report · 27 Sep 2013

Executive Summary The objective of this work is to discuss the empirical evidence on the interference of fiscal policy in monetary policy. We compare various fiscal policy measures and find that the one that performs the best by far (including in comparison with the structural primary surplus, pr...

Help From the Fed for the Brazilian Central Bank
BRAZIL ECONOMICS · Report · 23 Sep 2013

The markets were taken by surprise with the Fed’s decision to maintain the pace of asset purchases. US Treasury rates immediately fell, with the 10-year bond closing last week at 2.73% after having reached 2.99% before the meeting. Internationally, there was an immediate reversal in the behavior ...

Noise in the Economic Activity Indicators
BRAZIL ECONOMICS · Report · 16 Sep 2013

The extreme volatility of the data lately has been hampering the task of gauging the economic activity trend. In previous reports we have already indicated this has been happening with the figures on industrial production, where the monthly variations in recent months have been alternating betwee...

Labor and Credit Markets Do Not Favor Consumption
BRAZIL ECONOMICS · Report · 13 Sep 2013

Last week the data for August on the labor and credit markets were announced. The indications on both counts are that the growth of consumption will continue being lethargic. In August the unemployment rate fell to 5.3% in the seasonally adjusted series, but this does not mean the job market is g...

Retail Sales: Better Growth Than Expected
BRAZIL ECONOMICS · Report · 12 Sep 2013

Real retail sales in July grew 1.9% in the restricted sense and 0.6% in the augmented concept, which includes cars and construction materials (Graph 1). The respective variations over the past 12 months were 6.0% and 3.7%. One of the reasons for the surprising result was the strong sales of furni...

Fiscal Policy Remains Expansionary
BRAZIL ECONOMICS · Report · 09 Sep 2013

The big surprise in the minutes of the last COPOM meeting was the claim that there are “conditions, over the horizon relevant to monetary policy, for the public sector balance sheet to shift to the neutral zone.” This is especially strange after the recent statements by COPOM members of concern o...

Inflation and Growth: Where to?
BRAZIL ECONOMICS · Report · 09 Sep 2013

Executive Summary Inflation in July was near zero, but this does not represent a trend reversal. The 12-month forward-looking expectations continue to rise, at more than 6% a year; the 12-month inflation of non-tradables is still growing above the upper limit of the target interval; and even thou...

Increased Risks and a Depreciating Exchange Rate
BRAZIL ECONOMICS · Report · 04 Sep 2013

Executive Summary In response to the 2008 crisis, many countries abandoned the precepts of prudence and adopted highly expansionary fiscal policies along with a strong dose of monetary accommodation. This brought higher inflation and current account deficits, the latter of which became too large ...

Industrial Production: Still on a Rollercoaster
BRAZIL ECONOMICS · Report · 03 Sep 2013

Industrial production fell 2.0% in August, giving back nearly all the gain in July (2.1%) and continuing the extremely volatile pattern of recent months (Graph 1). The decline in the month was so steep that it brought the quarterly moving average into negative territory (-0.7%) for the first time...

GDP in the Second Quarter
BRAZIL ECONOMICS · Report · 02 Sep 2013

Brazil’s GDP growth in the second quarter exceeded all projections. At 1.5% (6.0% in annual terms – Graph 1), it was the strongest since the first quarter of 2010, changing the growth estimates for 2013. Among the various surprising results is the growth in the service sector, about which there i...

Inflation, Exchange Rate and the COPOM
BRAZIL ECONOMICS · Report · 26 Aug 2013

The COPOM will meet this week to decide on the new increment of the SELIC rate. A few days ago, in response to the upward shift in the yield curve reflecting the higher perceived probability of an impending hike of 75 basis points, Mr. Tombini hastily declared that “the yield curve has an excessi...

Labor Market: Contradictory Signals
BRAZIL ECONOMICS · Report · 22 Aug 2013

In July the unemployment rate was 5.6%, higher than the 5.4% in the previous month. However, in the seasonally adjusted series the rate remained stable at 5.6%. After correction for variations in the participation rate (the portion of the working age population that is working or looking for work...

The New International Environment, the Real Exchange Rate and Monetary Policy
BRAZIL ECONOMICS · Report · 22 Aug 2013

The global scenario has changed. On the one hand, the more vigorous growth in the United States has brought signals that the Federal Reserve will soon start easing back on its asset purchases, while on the other there are clear indications of slower growth in China. Against this backdrop, there i...

Conflict Between the Central Bank and Finance Ministry
BRAZIL ECONOMICS · Report · 19 Aug 2013

Last Friday the depreciation of the real accelerated, with the exchange rate approaching R$2.40/US$, which is the quotation attained at the height of the crisis in 2008 (Graph 1). Graph 1 Exchange Rate – daily data Winds from the United States contributed to this movement. The probability has bee...

Weak Retail Sales Performance
BRAZIL ECONOMICS · Report · 14 Aug 2013

Real retail sales grew only 0.5% in June, showing continuing deceleration in the preceding 12 months, with the rate falling from 4.4% in May to 1.7% through the end of June. In the augmented sense (with inclusion of cars and construction materials), the expansion during the month was 1%, with gro...

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