RIO DE JANEIRO, BRAZIL – Brazil’s Central Bank (BC) estimates that inflation will be 7.3% at the end of 2022, above this year’s target, according to the latest Focus Bulletin survey. A rate of 3.4% is also forecast for 2023.
The percentages were announced in the minutes of the Monetary Policy Committee (Copom). Click here for the full document.
The College raised the prime rate, the Selic, by one percentage point to 12.75% per annum. In the communiqué, it indicated that there will be another increase at the next meeting in June, but on a smaller scale.
The Copom minutes reinforce this comment: “The Committee, therefore, decided to signal a likely extension of the cycle, with a smaller magnitude adjustment at the next meeting.”
This strategy was considered the most appropriate to ensure the convergence of inflation over the relevant horizon and anchor longer-term expectations, while reflecting the tightening of monetary policy already undertaken, reinforcing the cautious stance of monetary policy, and underscoring the uncertainty of the scenario.
The Committee noted that, given the war between Ukraine and Russia and the recovery of economies in the “post-pandemic” Covid-19 region, there is considerable uncertainty about the future path of commodity prices.
The Committee concluded that due to the war in Ukraine and the recovery of the post-pandemic economies, there is great uncertainty about the future evolution of commodity prices in Reais. The Committee believes that there is an opportunity to convert, albeit partially, the increase in international commodity prices into local currency.
ECONOMIC SCENARIO
The Central Bank has stated that Brazilian growth has been in line with Copom’s expectations. According to the minutes, the labor market continues to recover, and trade and industry indicators have improved.
Meanwhile, inflation remains high and is distributed among the components of the IPCA (National Wide Consumer Price Index). “Among the more volatile items, the increase in gasoline prices continues to stand out, with a stronger and faster impact than previously forecast,” Copom said.
The international scenario continues to deteriorate, according to the central bank. “Inflationary pressures stemming from the post-pandemic global recovery have been exacerbated by the rise in commodity prices this year and, more recently, by the new wave of Covid-19 in China, which could further delay the process of normalizing the supply of industrial inputs,” the report said.
Copom also said that the restructuring of global production chains, already driven by the war in Ukraine, should be stepped up. The committee expects this process to have long-term consequences and to translate into prolonged inflationary pressures in global goods production.
UNDERSTANDING THE COPOM
The Committee is formed by the directors of the central bank (BC). They meet every 45 days to set interest rates. The next meeting will be held on June 14 and 15.
The financial market expected a 1 percentage point increase in the Selic rate on Wednesday (4). In March, the College also raised rates by 1 percentage point. The Selic rose 7.25 percentage points in 2021, the highest in the historical series. In 2022, it was revised upward by 3.5 percentage points through May.
The Selic is the main tool to control inflation, which is high in Brazil and worldwide. The IPCA (National Consumer Price Index) reached 11.3% in the 12 months accumulated through March. The level is 7.8 percentage points above the inflation target of 3.5%. According to analysts, the war between Russia and Ukraine is likely to put pressure on inflation worldwide, including in Brazil.
The previous inflation forecast by IBGE (Brazilian Institute of Geography and Statistics) showed that the index reached 12.03% in the cumulative 12 months to the end of the year.
For 2022, the inflation target is 3.5%. According to the Focus Bulletin financial market forecasts, the interest rate will be 7.89% at the end of the year. The percentage exceeds the permissible range, which is between 2% and 5%.
With information from Poder360