December 21, 2014
Brazil inflation imperils Rousseff’s reelection bid
Rising prices, sluggish growth are main issues, says VP
BRASILIA — Brazil's governing coalition is worried about high inflation and will seek to contain it to avoid hurting President Dilma Rousseff’s reelection chances in October, running mate and Vice-President Michel Temer said in an interview last week.
Stubbornly high inflation and sluggish economic growth have curbed Rousseff’s popularity in recent months, paving the way for what is shaping up as the closest presidential race in more than a decade in Latin America’s largest country, opinion polls show.
Inflation ending the year above the 6.5 percent ceiling of the official target is the Rousseff camp’s main concern, Temer told Reuters a day after meeting the leaders of the nine-party ruling coalition.
“We cannot let inflation pierce the target ceiling,” said Temer, who also heads the PMDB, the country’s largest political party and main ally of Rousseff’s Workers’ Party. “(Inflation) is a concern, no question about that.”
Temer’s comments mirror a growing view within the government that curbing inflation is a top priority and that it is too early for the Central Bank to resume cutting interest rates to prevent the economy from falling into recession.
Temer, who will be key in holding together the alliance of parties backing Rousseff in the October 5 vote, acknowledged that a media frenzy over a price surge last year made him believe that inflation could have climbed back to double digits.
However, the government was able to keep prices in check by raising interest rates and holding gasoline and electricity below market rates.
The 73-year-old lawyer did not specify how the government plans to ease price pressures this time, but said he was confident inflation will again end the year within the target range of 2.5 and 6.5 percent.
A more stable Brazilian currency, the real, and higher interest rates are expected to ease inflation after a surge in hotel prices and airfares during the soccer World Cup pushed the consumer price index to 6.52 percent in June. However, both government and market economists believe inflation will remain well above the 4.5 percent centre of the target range for the next two years.
The government is expected to hold gasoline and electricity prices steady this year and promised to rein in spending.
The mix of high inflation and weak economic growth helps Rousseff’s rivals, who blame her for deflating an economy that grew as much as 7.5 percent as recently as 2010.
Although Rousseff remains the front-runner, she is statistically tied with centrist PSDB party’s Aécio Neves, in a likely second-round runoff, two recent polls show.
Neves has joined a chorus of market critics who say Rousseff’s interventionist style has stalled consumer and business confidence in Latin America’s largest economy.
However, Temer said he was confident that low unemployment and rising wages will ultimately help Rousseff win reelection.
“Brazilians are satisfied with the everyday economy,” Temer said. If that continues, “we will not have problems in the election.”