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Brazil's Central Bank to Hold Drop in Food Prices Responsible if Inflation Target Is Missed

12/13/2017 - 11h08

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FROM SÃO PAULO

In the event that the government misses its inflation target for 2017, the Central Bank will hold the drop in food prices responsible. The target was set at 4.5% and included a margin of error of 1.5 percentage points.

After taking the state of the financial market into account, the Central Bank readjusted the projected inflation for 2017 to 2.9% - down from the 3.3% projected in October and below the low end of the government's official target zone.

In the event that the new projection is confirmed, the president of the Central Bank, Ilan Goldfajn, will have to send a letter to the Finance Minister, Henrique Meirelles, explaining why the target was missed.

This would be the first time a target is missed ever since the inflation target system was created in 1999.

"Given the expectations that prices will drop by around 5% this year, the household food component which was measured by the IPCA [Brazil's Consumer Price Index] explains a significant part of the departure from the 4.5% target, which had been set for the current year", read a record published on Tuesday (the 12th) of a meeting that the institution's Monetary Policy Committee (Copom) held.

The Central Bank also highlighted that the drop in the price of food is compensating the inflationary shock of administered prices which were affected by electricity tariffs that were recently adjusted.

Translated by THOMAS MATHEWSON

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