Friday, 9 January 2009

Brazil Inflation Rate Rose Most in Four Years Last Year -- Implications of This ...

Inflation in Brazil quickened to 5.9 percent in 2008 (it could have turned worse unless oil and commodities dropped in the last quarter of the year.) The IPCA index had its highest annual readings since 2004 -- 7.6 percent. The number remained within the central bank's tolerance target range of 4.5 percent plus/minus 2 percentage points. (Click here for the complete report on inflation released by the Brazilian stats institute, IBGE.)

Interest rate futures fell for a second day in Brazil, indicating that investors are betting that reduction in the Selic will come quicker than expected. The contract for the start of the year dropped to 11.81 percent. The number was, therefore, benign. With the Selic currently at 13.75 percent, the most likely scenario for the rate is a reduction of 50 basis points: strength in the job markets is somehow losing it, manufacturing is losing momentum, the president will somehow lose support at some point ... the reasons are many. Now, will it be possible that prices resume their upward trend? No at this point.

So, you might be thinking of a recessive scenario, right? Yes. Bonds, up. Stocks? Wait a little longer until the release of fourth-quarter earning results.


  1. You think earnings will be bad in Brazil? Yep, no doubts, but that nothing compared to the PE multiple that we'll see in the S&P500 companies for 4q08 and 1q09.

    It's gonna be naaaaaaaaaasty

  2. Si señor, you are right. But the Brazilian numbers won´t be any good at all. Especially consumer good and manufacturing comapnies, logistics and commodity exporters. You were yesterday (or today) talking about Cosan .. I am sure the sugar sector in one that will suffer quite a lot alongside the first half.