Inflation in Brazil

Here is a good summary of how focused Dilma Rousseff is on curbing inflation. It is at 6.59%, which is higher than the government's stated upper limit of 6.5%.

The policy reaction is to help out domestic ethanol. Rousseff wants to ramp up ethanol production to get fuel prices down, so is providing tax breaks and expanded credit. Ethanol producers are annoyed that gas prices are artificially low, but raising them would also spur inflation.

After months of pressure and mounting losses at state oil giant Petrobras, the government agreed to allow a 6.6 percent increase in wholesale gasoline prices in January. However, analysts estimate local gasoline prices are still about 15 percent below international levels, allowing the petroleum-based fuel still to undercut ethanol's competitiveness.

The Brazilian government remembers the years of hyperinflation, as do many other Latin American governments. At the same time, though, research has shown that people are forgiving of moderate increases in inflation as long as they believe the government is encouraging growth.

It's funny, too, how fickle the media is. Just over a year ago there were all kinds of stories about how incredible the Brazilian economy was. Now the news is almost universally gloomy. Yes, the economy has slowed down, but there seems to be no middle reporting ground.