Economic Trends in Brazil
Introduction
Brazil’s booming economy has to tame “two wild horses” at the same time. A rising inflation rate coupled with a currency appreciating at a fast rate, is destabilizing the economy. With inflation rising at a rate of 6.3%, soon it will rise above the Central banks maximum target of 6.5%.
Alongside, the Real has appreciated to 1.58 reais to a US dollar which is one of the highest rates since the Real has been allowed to float from 1991.
The problem is such that the “economic cost of bringing down inflation is too high”, as this will harm the economic growth of Brazil. Hence drastic actions are not seemingly attractive. Using a monetary policy where the central bank is increasing interest rates, is making Brazil attractive to foreign investment. In turn valuing the currency and raising prices of exports in the economy. Among many ideas floating to resolve this issue, the central bank plans to implement “macro prudential measures” to curb inflation without raising the Real. President Dilma Rousseff vows to control inflation at any cost. In order to control this problem, the President will have to deal with minimum wages with industries already suffering due to high level of import consumption.
-------------------------------------------------
In an attempt to understand and analyze Brazil’s economy and its current problem, I will use the macroeconomic concepts of Inflation and Exchange Rates. My aim will be to explain the problems in detail and then propose ideas using these concepts to achieve a healthier Brazilian economy, aiming for a lower rate of inflation and a depreciation of the Real. Along with looking at problems like, the local industrialists’ dilemma of increasing dependency on imported goods and services and the affect on consumers.
Theory Review and Analysis
Brazil’s government and industry need to control the rising rate of inflation and the ever valuing real. This is because inflation in the economy is causing general price levels
Brazil’s booming economy has to tame “two wild horses” at the same time. A rising inflation rate coupled with a currency appreciating at a fast rate, is destabilizing the economy. With inflation rising at a rate of 6.3%, soon it will rise above the Central banks maximum target of 6.5%.
Alongside, the Real has appreciated to 1.58 reais to a US dollar which is one of the highest rates since the Real has been allowed to float from 1991.
The problem is such that the “economic cost of bringing down inflation is too high”, as this will harm the economic growth of Brazil. Hence drastic actions are not seemingly attractive. Using a monetary policy where the central bank is increasing interest rates, is making Brazil attractive to foreign investment. In turn valuing the currency and raising prices of exports in the economy. Among many ideas floating to resolve this issue, the central bank plans to implement “macro prudential measures” to curb inflation without raising the Real. President Dilma Rousseff vows to control inflation at any cost. In order to control this problem, the President will have to deal with minimum wages with industries already suffering due to high level of import consumption.
-------------------------------------------------
In an attempt to understand and analyze Brazil’s economy and its current problem, I will use the macroeconomic concepts of Inflation and Exchange Rates. My aim will be to explain the problems in detail and then propose ideas using these concepts to achieve a healthier Brazilian economy, aiming for a lower rate of inflation and a depreciation of the Real. Along with looking at problems like, the local industrialists’ dilemma of increasing dependency on imported goods and services and the affect on consumers.
Theory Review and Analysis
Brazil’s government and industry need to control the rising rate of inflation and the ever valuing real. This is because inflation in the economy is causing general price levels