Inflation Forecasts in Brazil for 2016 Rise Once Again

By Lise Alves, Senior Contributing Reporter

SÃO PAULO, BRAZIL – Financial institutions in Brazil have increased for the sixth consecutive week their forecast for inflation in 2016, from 7.25 percent to 7.29 percent, according to the weekly Central Bank Focus Survey. The survey shows that for 2017 the estimate for inflation continues steady at 5.5 percent.

The forecast continues above the target center established by the government this year of 4.50 percent as well as the target ceiling of 6.50 percent. For 2017 the Central Bank maintained the target center at 4.5 percent by reducing the target ceiling to six percent.

The survey also showed that the forecast for the Selic (annual benchmark interest rate) at the end of the year increased from thirteen percent to 13.25 percent. Currently the rate is at 14.25 percent. For the end of 2017, however, the rate expectation in the past week decreased from 11.25 percent to eleven percent per year, a sign that financial analysts believe that the economy will slowly improve next year.

Forecasts for the country’s Gross Domestic Product (GDP) for this year continue to call for a decline by 3.44 percent. For next year, however, financial analysts forecast a slight growth of one percent.

Despite the turbulence seen across the Atlantic due to the plebiscite last week where the U.K. decided to leave the European Union, analysts here in Brazil do not forecast a huge impact on the country’s foreign exchange rate in relation to the U.S. dollar/Brazilian real ratio. The rate remained steady at R$3.60/US$1 for the end of this year and R$3.80/US$1 for the end of 2017.

The Focus Report is a weekly survey conducted by Brazil’s Central Bank with forecasts from more than one hundred financial institutions.