The carte blanche that President Lula gave the Central Bank to attack inflation is more than evident. Even being an election year, the basic interest rate has been increased three times, being that the last one was the second-largest of the Lula administration (0.75%).

 

Unfortunately, this liberty is due to the economic team’s lack of courage to attack the problem more energetically, such as reducing public expenditure and containing consumption.

 

An assessment drawn up by Representative Arnaldo Madeira’s Cabinet, published by the O Globo newspaper last week, shows that during the first half the year, the federal government created new expenses that weren’t provisioned in the 2008 Union Budget and that are already superseding R$ 30 billion.

 

The government seems to have finally woken up. Minister Paulo Bernardo stated last week that President Lula authorized new expenditure cutbacks with the exception of the social area.

 

However, measures to contain consumption were discarded.  With wages now worth less, Lula fears that consumption de-stimulation will make the poulation even more unhappy with the government as far as fighting inflation is concerned. The last CNI/Ibope poll showed that 53% of those interviewed disapprove of the way in which the government is dealing with the problem. In March it was 43%.