Driven by heightened domestic spending, Brazil’s red-hot economy posted its fastest first-quarter growth since 1995.

The 5.8% economic expansion - the country’s 18th consecutive quarterly gain - fuels the notion that its central bank will continue raising interest rates to dampen inflation and demand.

“The figures show domestic demand is still strong,” Zeina Latif, an economist with Banco Real in Sao Paulo, told Bloomberg News. “The central bank will remain concerned with a mismatch between demand and supply.”

Since April, Brazil’s central bank has raised its benchmark rate, called the Selic rate, twice - from 11.25% to 12.25%. And economists are forecasting it could be raised as high as 14% at the bank’s next meeting.

Food cost inflation in Latin America’s biggest economy had surged to 5.25% by mid-May, and well above the central bank’s generous target of 4.5%.

Walking the line between curbing inflation and promoting growth is tough for every emerging economy. In Brazil’s case, kicking up interest rates again will throw a wet towel on one of its hottest consumer markets - real estate.

“The economy is strong but we can’t say for sure it’ll continue this way if inflation eats into consumer incomes and credit begins pulling back,” Carlos Thadeu de Freitas Gomez, chief economist with Brazil’s National Confederation of Commerce, told Bloomberg.

Safe From U.S. Woes

Investors shouldn’t worry because, if anything, that’s a good problem to have.

Secondly, Brazil is far enough removed from the sagging U.S. economy because South America as a whole has strong energy, mining, financial and agriculture industries, making them less reliant on U.S. imports.

Last year, Brazil’s main stock market index, Bovespa Holding SA, rose 71% - even faster than India’s.

And on Feb. 20, Brazil displaced China to become the world’s biggest emerging market, according to a key index - Morgan Stanley Capital International Global Emerging Markets (MSCI GEM). 

That shift will likely attract billions in new money to Brazilian stocks, especially from money managers who benchmark their portfolios against the MSCI GEM index.

The bottom line: Expect money to flood Brazilian shares, says Keith Fitz-Gerald, Investment Director for Money Morning.

“Anytime a country moves to the top of that index there’s a strong re-indexing effect,” Fitz-Gerald said. “And that will lead to billions of dollars of institutional money being shifted as those professional investors rebalance their portfolios.