Brazil’s financial market projects inflation at 5.44% for this year – Focus report

RIO DE JANEIRO, BRAZIL – The financial market has once again increased its forecast for inflation this year. According to the Focus Bulletin projection, released today (7), in Brasília, by the Central Bank, the Broad Consumer Price Index (IPCA) – the country’s official inflation rate – should close 2022 at 5.44%.

It is the fourth time that an increase in inflation is projected for 2022. A week ago, the market’s estimate was that inflation would end the year at 5.38%. Four weeks ago the forecast was 5.03%.

However, these weekly changes alone already show how non-binding these statements are, a pure snapshot without any real significance. Our advice: take note of them but don’t believe in them too much.

For 2023, analysts maintained last week’s expectations regarding the IPCA. This week’s projection points to inflation of 3.50%. Two weeks ago, the calculation was 3.40% next year. In 2024, the projection is the same as last week: 3% inflation.

The bulletin, released weekly, gathers estimates for the country’s main economic indicators.

GDP

In today’s bulletin, Focus also maintained its forecast for the Gross Domestic Product (GDP) – the sum of all the wealth produced in the country – recorded seven days ago. The projection is for GDP growth of 0.30% in 2022. Four weeks ago the market had forecasted the expansion of the Brazilian economy at 0.36%.

The Focus registers for the third time in a row a decrease in GDP growth expectations for 2023, from 1.55% last week to 1.53%. For 2024, the estimate remained stable at 2%.

The market’s forecast for the basic interest rate, the Selic, in 2022 was stable for the fourth time in relation to last week’s announcement: 11.75% per year.

Last week the Monetary Policy Committee (Copom) increased the interest rate from 9.25% to 10.75% per year. The decision was expected by financial analysts.

The rate reached double digits for the first time since July 2017, when it was at 10.25% per year. This was the eighth consecutive adjustment in the Selic rate. In a statement, Copom indicated that it will continue to raise basic interest rates until inflation is under control in the medium term.

By the end of 2023, market estimates are that the basic interest rate will fall to 8% a year. And for 2024, the forecast is for a Selic of 7% a year, a calculation that repeats that of the previous weeks.

The market’s expectation for the dollar’s quotation in 2022 also remained the same as the one projected last week: R$ 5.60. For next year, the market estimates that the currency should stay at R$ 5.50. For 2024, after a period of stability, the North American currency should go from R$ 5.40, estimated last week, to R$ 5.39.

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