Brazil is cutting all federal taxes on staple foods in a bid to tame inflation, after a report showed yesterday consumer prices rose more than analysts forecast for an eighth straight month.
A weaker currency, record low borrowing costs and $23 billion in tax cuts failed to kick-start the economy last year. Instead, the measures helped fuel inflation that is running faster than in Mexico, Colombia or Chile and approaching the 6.5 percent upper limit of the central bank’s target range.
Eliminating the 9.25 percent PIS/Cofins taxes on staple foodstuffs will both rein in prices and stimulate the economy as Brazilians improve their ability to save and consume, President Dilma Rousseff said. The measure will reduce tax revenue by 7.3 billion reais annually.
“At no time has there been a lack of care for the control of inflation, because economic stability is fundamental for us,” Rousseff said in a televised address. “That’s also why we don’t stop looking for new ways to lower the cost of living for Brazilians.”
Consumer prices rose 0.6 percent in February, above the 0.49 percent forecast from 44 analysts surveyed by Bloomberg, the national statistics agency said in Rio de Janeiro yesterday. Annual inflation quickened to 6.31 percent and has exceeded the central bank’s 4.5 percent target for 30 months. Economists forecast 2013 inflation at 5.7 percent, according to the median estimate in the most recent central bank survey.
Food and beverages accounted for more than half of February inflation. Last year they were the second-largest source of inflation after personal expenses, when their prices rose 9.9 percent. Food and drinks represented 23.9 percent of family budget in 2012.
The elimination of federal food taxes will do little to suppress inflation as consumers direct savings toward the purchase of services and drive their prices higher, said Pedro Tuesta, chief economist at 4Cast Inc.