SÃO PAULO, Brazil - Brazil President Dilma Rousseff has an inflation problem.
As the 62-year-old former President Chief of staff prepares Office 1 Jan., take food prices rent and basic services faster than forecast. Inflation is on course towards 6% this year and the country's annual target outreach - an economic policy cornerstone - for the first time in the year.
Reuters Dilma Rousseff early November, shortly after your election as President of Brazil to leave your House.Brazil single-digit inflation is still extremely low compared to the hyperinflation of the South American nation an icon of economic mismanagement only made in the early 1990s. Still, prices rise quickly enough politics headache for Mrs Rousseff, how such as force the populist fought on welfare and building expand mull to create roads and dams to expenditure restraint.
During the election campaign, Mrs of Rousseff Brazil promised sky-high to lower interest rates. But clogging inflation Brazil's Central Bank is always ready to increase prices, not reduce, economists say. Directors meet Central Bank on Wednesday to discuss possible improvements. Many Brazilian economists expect that the country the its 10.75% rate increase - among the highest in the world - to end of January at the latest.
Pressure to fend off interest rates even higher inflation creates other headaches. The high prices to win speculative investment from abroad, the Brazilian currency strengthen and make competitive exporters and local producers of less. The Central Bank attempts so far to slow down other means such as raising inflation reserve requirements for banks. But sooner or later the officials are probably raised prices. Brazil's Banco Itaú predicts that the central bank rates by two percentage points until 2011, such as fires.
Inflation as Brazil Government picked up took on more debt to increase the expenditure to the global financial crisis. The stimulus helped Brazil weather the downturn. But two years later, the stimulus spending to Brazil's natural growth rate of 4.5% on China as 7%, inflation towards creating juiced has.
"The inflation problem requires a policy response" Marcelo Carvalho says follows Brazil at BNP Paribas in São Paulo.
Brazil's Finance Minister Guido Mantega, who is set to remain after taking office, said Mrs Rousseff in his job this week that the Federal Government will introduce controlled inflation some expenditure restraint.
The reductions include exhibition less subsidised loans, cuts in different ministries and possibly some of the Federal Government delay massive infrastructure programmes - what are the core of Rousseff management to be meant.
However, not everyone is convinced that expenditure will happen cuts promised Mr Mantega.
Holding back issues for Mrs Rousseff will be politically difficult, seeks to keep connected different Coalition Silva along together by the current President Luiz Inácio Lula da.
Some Government supported projects, such as new stadiums, can not be delayed because you have to be done before hosts Brazil the 2014 FIFA World Cup and the Olympic Games 2016.
Meanwhile, government officials discuss potential expenditure increases in key areas. Soon after their Oct. 31 choice said Mrs Rousseff the Government may raise minimum wages, more than the law requires in 2011. Opposition lawmakers criticized a plan last week a presidential Jet buy - estimated at several hundred million dollars - for Mrs Rousseff, one for Mr da Silva in 2005 acquired replace.
"A little fiscal restraint could solve a lot of problems, but the question is how much political will to do, it is," said Alberto Ramos at Goldman Sachs. "The track record is not very good."
Write toJohn Lyons at the john.lyons@wsj.com
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