Inflation Forecasts for 2016 Continue to Ease in Brazil

By Lise Alves, Senior Contributing Reporter

SÃO PAULO, BRAZIL – Financial institutions have lowered for the fifth consecutive week their forecast for inflation in 2016, according to the weekly Central Bank Focus Survey. The survey, however, also showed the expectation of further decrease in the country’s annual GDP growth.

According to the Focus Survey, which gathers forecasts from one hundred financial institutions in Brazil, inflation forecasts measured by the IPCA, went from 7.28 percent the work week ending on April 1st to 7.14 percent at the end of last week, April 8th.

Although there was a decline, the forecast is still above the target ceiling established by the government of 6.50 percent. For 2017 the inflation estimate fell from six percent to 5.95 percent.

Forecasts for Brazil’s GDP growth, however, fell for the 12th consecutive time, from -3.73 percent to -3.77 percent. For next year financial analysts forecast a slight growth of 0.30 percent.

The survey also showed that the forecast for the Selic (annual benchmark interest rate) at the end of the year remained stable at 13.75 percent. The rate today is at 14.25 percent. For the end of 2017 the rate is expected to decrease even further, to 12.25 percent per year.

Analysts interviewed also forecast a slight improvement in industrial production growth, from a retraction of 5.80 percent to a retraction of 5.60 percent. For next year, analysts believe the country’s industrial production should go back into positive territory, registering a growth of 0.69 percent.

After the extreme volatility seen in the last few months, the country’s foreign exchange rate remained steady for the past two weeks, with financial institutions forecasting that the rate will stabilize at R$4.00/US$1. For 2017 there is the expectation of a slight appreciation of the U.S. currency, with the rate rising slightly to R$4.10/US$1.