A recent report indicated that Brazil's inflation rate will rise to 4.6% by the end of 2011, above the central bank's original target. Unlike China's export-dependent economy, Brazil can barely stave off surging domestic demand that's leading to an inevitable rise in inflation. However, a rise in consumer prices has done nothing to curb economic growth -- in 2009, the iShares MSCI Brazil Index has gained 111%, helped in large part by the tremendous success of stocks like Petrobras (NYSE:PBR) and Vale (NYSE:VALE).
According to Bloomberg:
"From the point of view of the balance of risks related to the inflation outlook, the major risk comes from the intensity of the domestic economic activity recovery, which will still be influenced by significant economic policy stimulus," the central bank report said. "The key factor sustaining economic activity will continue to be domestic demand."
It certainly doesn't seem like demand is likely to subside any time too soon. U.S. companies such as Wal-Mart Stores (NYSE:WMT) and JetBlue Airways (NASDAQ:JBLU) have apparently seen the writing on the wall and are already planning substantial investments in Latin America's largest economy. Should the economy continue on its fast track, look for domestic, consumer-related companies to fare well, such as BRF-Brasil Foods (NYSE:BRFS) and Cosan (NYSE:CZZ).
What do Fools think: Is Brazil overheating or is it just getting started? Sound off in the comments box below.
