Brazil’s labor market, which is already operating near full employment, has room to handle faster economic growth without stoking inflation, central bank President Alexandre Tombini said.
“The labor market is tight but the use of the labor market is not as tight as the headline figure,” Tombini said at Bloomberg’s emerging markets forum in Miami today. “There has been a decline in working hours and some segments of the Brazilian economy have given compulsory holidays for workers.”
Carmakers including Daimler AG’s Mercedes-Benz and General Motors Co are among manufacturers that have ordered mandatory worker furloughs in Brazil this year as assembly lines are idled by the weak economy. Growth (BZGDGDP4) in the world’s sixth-biggest economy slowed last year to 2.7 percent, less than Germany and trailing much of Latin America, amid the European debt crisis.
Since August, the central bank has reduced the benchmark interest rate five times in a bid to revive the economy, saying in the minutes to its March meeting that there is a high probability borrowing costs will be reduced to slightly above the historic low of 8.75 percent. The government also extended yesterday for three months tax cuts on washing machines, refrigerators and other appliances in exchange for promises to preserve jobs in the industrial sector.
As a result of these efforts, growth should accelerate in the second half of the year, Tombini said. Inventory levels that were depleted during last year’s slowdown also need to be replenished, meaning that any pick-up in demand will be met with increased production, he added.
Even as growth looks poised to accelerate, wholesale and producer prices are behaving well, indicating that “inflation has been on a clear downward trend for a while,” Tombini said. Inflation, which has remained above the government’s 4.5 percent target since August 2010, stood at 5.61 percent in mid-March.
“A growth pick up is not incompatible with inflation converging and stabilizing around, hovering around, the midpoint of the inflation target,” Tombini said.
Analysts may disagree, and already see the jobless rate at levels inconsistent with stable inflation.
The jobless rate hit a record low 4.7 percent in December and averaged 5.9 percent in the 12 months through February. Economists interviewed by the bank in February estimate the NAIRU, or non-accelerating inflation rate of unemployment, to be 6.5 percent.
Brazil’s economy slowed less than analysts expected in January as demand for goods and services helped offset a 2.1 percent contraction in industrial output.
Brazil’s seasonally-adjusted economic activity index, a proxy for gross domestic product, fell 0.13 percent in January, the central bank said yesterday. Analysts expected a 0.5 percent decline, according to the median estimate in a Bloomberg survey.
The world’s sixth-largest economy will expand 3.23 percent this year, according to the median forecast in a March 23 central bank survey of about 100 economists.
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