“Above normal” uncertainty could exert inflationary pressure says Copom

In the minutes of last week’s meeting (January 18 and 19), the Monetary Policy Committee (“Copom”) spelled out its recognition of the existence of “above normal” levels of uncertainty in the Brazilian economy with regard to the possible impact inflation may have. Copom mentioned rising risks of “a scenario in which inflation converges on the target established by the government.”

The government’s inflation target, based on the Broad Consumer Price Index (“IPCA”), is 4.5%, plus or minus two percentage points. On Monday, the Central Bank released a market estimate of 2011 inflation at 5.53%.

The members of Copom expressed concern with food prices that are subject to the strong influence of domestic and foreign supply, as well as climatic conditions that have been highly adverse in parts of Brazil at the beginning of this year. Other relevant risks were posed by supply and demand disorder and the problem of a lack of skilled workers that a growing economy calls for. “This is a situation where nominal salary increases may be incompatible with the growth of productivity levels,” said the Copom minutes.