Inflation Forecasts Continue to Rise in Brazil

By Lise Alves, Senior Contributing Reporter

SÃO PAULO, BRAZIL – Inflation forecasts in Brazil for this year have increased for the seventh consecutive time, as analysts now predict end-of-year inflation to reach 7.61 percent, according to the weekly Focus Survey bulletin released by the country’s Central Bank. For 2017 the official government forecast remains at six percent.

The inflation index (IPCA) picked up strength in January, registering an increase of 1.27 percent in relation to the previous month, the highest monthly rate for January since 2003. Food and beverages increased by 2.28 percent during the month, while transportation costs increased by 1.77 percent.

This year’s annual forecast is far from the 4.5 percent target and the 6.5 percent upper limit established by the Brazilian government. Nonetheless, financial institutions surveyed for the Bulletin do not expect the Central Bank to increase the country’s benchmark interest rate (Selic) this year. The forecast for the Selic at the end of 2016 remains at the same level as seen today, 14.25 percent. Next year the Selic is expected to decline to 12.75 percent.

The Focus Report, a survey conducted with approximately one hundred financial institutions in Brazil, also forecast further deterioration in the country’s GDP growth, with a retraction of 3.33 percent this year and a growth of 0.59 percent next year.

For the foreign exchange rate, analysts do not forecast an appreciation of the Brazilian real in relation to the U.S. dollar in the short to medium term. According to the survey, the local currency should depreciate even further, ending the year at R$4.38/US$1 and for 2017 at R$4.40/US$1.