Brazil to keep inflation goal for 9th year-sources

By Isabel Versiani

BRASILIA (Reuters) – Brazilian policymakers will likely keep the country’s inflation target unchanged for the ninth straight year, sources familiar with the decision told Reuters Tuesday.

Brazil’s National Monetary Council is expected to keep unaltered the two percentage points leeway above and below the 4.5 percent target for 2013, said the sources, who declined to be named because they are not authorized to speak on the record.

A recent surge in commodity prices that fueled domestic inflation as well as the reluctance of some manufacturers to slash prices were cited by the sources as reasons behind the decision, which could be announced by the council, Brazil’s main policymaking body, at the end of the month.

The CMN, as the council is known, is formed by the finance and budget and planning minister, as well as the central bank president. It announces annual inflation targets two years in advance and gives guidelines for the following year — in this case, 2014.

The decision implies that the government is comfortable with a level of domestic inflation above international trends that casts no threat to the country’s economic expansion. For years, policymakers have argued that pursuing inflation close to 3 percent could require an enormous sacrifice in terms of economic growth and jobs.

Brazil’s benchmark consumer price index, known as the IPCA , has risen 6.55 percent in the 12 months through May, just above this year’s target ceiling.

The country grappled for decades with hyperinflation and repeated booms and busts until a severe anti-inflation program was implemented in 1994. The so-called Plano Real helped tame inflation to single-digits from about 4,900 percent when it was implemented.

The central bank has been forced to keep interest rates high in order to thwart sudden surges in consumer prices. The Selic overnight lending rate , currently at 12.25 percent, is the highest among the world’s 20 major economies.

Central banks use interest rates to drain money from the economy and prevent demand from fanning price increases above their annual inflation target. (Editing by Guillermo Parra-Bernal; Editing by Dan Grebler)