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Brazil's economy roars, but inflation a worry

Braxil - Complaints about rate rises
Braxil - Complaints about rate rises

Official figures show that Brazil's economy - the biggest in Latin America - grew by 7.5% in 2010, its fastest expansion in 25 years.

The growth, which was largely thanks to strong industrial output and domestic consumption, easily outstripped the average annual 3.6 percent rise in gross domestic product recorded over the previous decade, the Brazilian Geographic and Statistics Institute said.

This year, growth is expected to cool a little, to 5.5%, to the relief of officials and analysts who worry that a red-hot economy is putting too much strain on Brazil's limited infrastructure.

Inflation has now become a major concern. On Wednesday, the country's central bank raised its key interest rate for the second time this year, to 11.75%, in an effort to try to keep a lid on inflation. Last year, prices rose 5.9%, well above the government target of 4.5%.

Brazil's new president, Dilma Rousseff, a trained economist herself, has vowed she will not let inflation run out of control. Her country has traumatic memories of hyper-inflation in the 1980s and 1990s that at one point reached 2,000% 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 its currency, the real, making exports less competitive, and increasing their costs.