Latin American economic analysis for week of June 6

Latin American economic analysis for week of June 6

Political uncertainty is giving Brazil’s economy a bad case of the jitters as rumors abound that President Lula’s inner circle could be facing a big shakeup in light of accusations of corruption. Evidence suggests that the Brazilian government had been bribing legislators in return for congressional support. Delúbio Soares, treasurer of ruling Workers’ Party has denied any wrongdoing. Regardless, the Brazilian markets have reacted poorly, slipping five days in a row and recently dumping another 0.88% on Thursday to end at 24,483 points. Further compounding the market’s problems is news that Brazil could experience a natural gas shortage by the end of the week. Tensions are high in Bolivia, Brazil’s main natural gas supplier, as protestors are threatening to shut down a gas pipeline between the two countries. Brazil’s real, however, rose for the first day in six relieving some of the stress on the market. The government reported that inflation fell to its lowest point in seven months prompting the real to rise 0.7% to 2.478 per dollar. Thus far this year, the real has gained 6.9% against the dollar. In Mexico, core inflation fell to a record low in May stoking speculation that the central bank may soon begin lowering rates once more. For the month of May, inflation fell 3.42%, a month to month drop of .04%. The Banco de Mexico reports inflation is easing and economists say that inflation rates may be low enough by September to open the way for rate reductions. Mexico’s economy reportedly grew 2.4% in the first quarter which was less than half the rate in the fourth quarter. Economists cite rising interest rates and slackened US demand for Mexico’s products as culprits. Moreover, retail sales growth slowed to 4.4% in March, down from 7% in December. The Mexican peso fell slightly about 0.15% to about 10.87 per dollars. Around the region, Argentina’s peso was up 0.12% to 2.89 per dollar and the Chilean peso dropped 0.10% to 589.50 per dollar.