the biggest in Latin America - grew a sizzling 7.5 percent in 2010, its fastest expansion in 25 years, the government statistics agency said Thursday. The growth, which was largely thanks to strong industrial output, easily outstripped the average annual 3.6 percent rise in gross domestic product recorded for the decade 2001-2010, the Brazilian Geographic and Statistics Institute said. This year, growth is expected to cool a little, to 5.5 percent, to the relief of officials who worry that a red-hot economy was putting too much strain on Brazil's limited infrastructure. Inflation has now become a major concern. The country's central bank Wednesday raised its key interest rate for the second time this year, to 11.75 percent, in an effort to try to keep a lid on inflation. Last year, prices rose 5.9 percent, well above the government target of 4.5 percent. Analysts predict additional tightening in April. "The economy is zooming along, demand is a lot stronger than supply, and the central bank had to raise the rate to get inflation within the limits," an economist at the Brazilian Economic Institute of the Getulio Vargas Foundation, Fernando de Holanda Barbosa, said. Brazil's new president, Dilma Rousseff, a trained economist herself, has vowed she would not let inflation run out of control. Her country has traumatic memories of hyperinflation in the 1980s and 1990s that at one point reached 2,000 percent a year. A return to those bad days would erode the wealth Brazilians have accrued over the past decade, when inflation was kept under tight rein and growth bloomed. To that end, Rousseff has ordered $30 billion in cuts to public spending. Brazil's manufacturing sector, though, is complaining loudly about the successive rate hikes, which are pushing up the value of the real, making exports less competitive, and increasing their costs. "We are witnessing the strangulation of the national economy," the Sao Paulo state Federation of Commerce said in a statement Wednesday. – Agence France-Presse It blamed the inflation spike on the United States and its ultra-easy monetary policy. Economists stressed that, in the short term at least, Brazil's very high interest rates would just encourage the already strong inflow of foreign investment. "The rise of the interest rate in relation to other countries in the world attracts capital that won't go to direct investment but rather to fixed-income funds with big returns, and the stock market, and that will have short-term effects on the exchange rate," Barbosa said. – Agence France
