World Cup to kick up prices in inflation-weary Brazil

Mon Apr 21, 2014 7:16am EDT
 
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By Alonso Soto

BRASILIA (Reuters) - As if worrying about unfinished stadiums and overcrowded airports wasn't enough, the upcoming soccer World Cup will give Brazilian policymakers another headache: an inflation spike.

The arrival of roughly 600,000 foreign tourists for the month-long tournament that starts in mid-June will likely cause substantial increases in the prices of airline tickets, restaurant meals and hotel rooms.

Those three areas account for about a tenth of the weighting of Brazil's benchmark IPCA consumer price gauge. That could spell trouble for President Dilma Rousseff as the inflation rate is already at 6.19 percent.

"The World Cup will make things more difficult for the government," said Reginaldo Nogueira, economics professor at Ibmec business school in Belo Horizonte.

The World Cup has already been bogged down by cost overruns, delays in infrastructure projects and deadly accidents.

Although the government expects the tournament to add half a percentage point to economic growth and thousands of jobs, rising inflation and persistently weak growth has eroded Rousseff's popularity as she seeks re-election in October.

Nogueira said that price shocks from the Cup could be the last straw that puts Brazil's 2014 inflation target - between 2.5 and 6.0 percent - out of reach.

Estimates as to the exact impact of the World Cup on consumer prices vary. Juan Jensen, chief economist with Sao Paulo-based consultancy Tendencias, said it may add 0.35 percentage points to inflation in June alone.   Continued...

 
A Colombian fan displays his FIFA 2014 World Cup tickets for the match between Colombia and Greece, in Rio de Janeiro April 18, 2014. REUTERS/Ricardo Moraes