BRASILIA, Dec 30 (Reuters) - Brazil's slowing economic growth next year should help control a recent spurt in inflation, Finance Minister Guido Mantega said on Thursday.
Rising prices in Latin America's biggest economy present one of the most difficult policy challenges for President-elect Dilma Rousseff when she takes office on Jan. 1.
"Inflation is showing signs of easing," Mantega told reporters, adding that a recent surge in prices was due to a temporary blip in food costs.
He added that recent gains in the Brazilian real BRBY, which closed 2010 at its strongest in over two months on Thursday, were also atypical due to end-of-year trading.
"This question will be dealt with from January by the next government, probably (via) measures in the trade sector," Mantega said.
Inflation in Brazil quickened at its fastest pace in more than five years in November, driven by a surge in food and beverage prices, data showed earlier this month.
At 5.63 percent, the 12-month inflation rate also came in dangerously close to the upper limit of the government's target of 4.5 percent, plus or minus 2 percentage points.
But the incoming government is reluctant to deal with the problem by raising the country's already high interest rates for fear of attracting even more speculative hot money.
TRADE MEASURES
Rousseff plans targeted tariff increases and tax breaks as a way of addressing the strong currency, sources close to the incoming government told Reuters this week.
But the government has not decided to lift the existing income tax exemption foreigners enjoy on local bond holdings, Mantega said. The measure had been put forward by analysts in recent days as one possible way to deal with the strong currency.
The real has gained over 12 percent since the end of May, putting huge pressure on local companies that are struggling to sell their products abroad and compete with a flood of cheap imports.
The end of the year would have been an ideal time to reintroduce the income tax on bond holdings since it would be enacted immediately, said Christopher Garman, director for Latin America at political risk consultants Eurasia Group in Washington.
But this does not mean the new government will not introduce other measures to curb currency-boosting inflows such as raising the tax on foreign bond purchases, he said.
"They're going to do a bit of everything and incremental capital controls is one of them," he said.
Source: www.reuters.com
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