Increase in Brazil’s core inflation worries, says Central Bank president

RIO DE JANEIRO, BRAZIL – The president of the Central Bank (BC), Roberto Campos Neto, said this Tuesday (14) that, although there are questions about the short-term fiscal framework in Brazil, market agents point out that the great weakness lies in the country’s ability to grow in the long term.

In a presentation during an event promoted by the Federal Court of Accounts (TCU), Campos Neto said that the monetary authority has shown concern about the increase of inflation cores in Brazil and highlighted that price indexes are taking off, with “diffusion elements to a large extent. expanded”.

At the event, the BC president said that the de-anchoring of inflation expectations for 2022 is similar to that observed in 2017, being “super important” for BC to act and anchor expectations.

“The most perverse tax we have is inflation, it is essential to act quickly, consistently, transparently so that we can abort this decoupling process,” he said.

According to Campos Neto, market agents say that Brazil’s structural growth is lower than previously forecast.

“Part of this premium in the long part of the curve is partly associated with [fiscal] noise, but there are doubts about the country’s growth capacity,” he said.

Campos Neto said the monetary tightening cycle in the world should further dry up liquidity and stressed that Brazil would need these investments to generate economic growth at a time when the fiscal side “is exhausted.”

Talking about the difficulties observed in inflation projections during the Covid-19 pandemic, the BC president stated that central bankers were prepared for a depression that did not come following a recession.

He said an “increase in inflation” globally and noted that there had been a disruption in trade chains, mainly due to an increase in demand for goods.

In Brazil, the president of BC said that the measures to combat the pandemic were effective and allowed a faster return to activity. However, he said it is now possible to see emerging countries accelerating more strongly than the Brazilian economy.

Campos Neto also said that the more volatile parts of inflation began to show some cooling but added that it remains to be seen how this movement will take place.

The minutes of last week’s meeting of the Monetary Policy Committee, released on Tuesday, maintained a stern tone regarding inflation and noted that the CB could keep the base interest rate at a high level for longer to tame the index and inflation. Expectations.

The document shows that BC evaluated scenarios with a more intense adjustment in the Selic than the increase of 1.5 percentage points made last week and tables in which the interest rate remains high for a more extended period.

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