Market reduces projection for inflation this year, points out Focus Bulletin

Market reduces projection for inflation this year, points out Focus Bulletin

According to the Market Focus Report, the projection for the IPCA for 2022 went from 7.96% to 7.67%, while the estimate for 2023 rose from 5.01% to 5.09%

The median for the high IPCAthe index of official inflation, for 2022 continued to lose steam in the last week, while estimates for 2023, the current focus of monetary policy, continue to move away from the ceiling of the target for next year. according to the Focus Bulletin, the projection for the IPCA for 2022 went from 7.96% to 7.67%, while the estimate for 2023 rose from 5.01% to 5.09%. A month ago, estimates were 8.50% and 4.70%, respectively.

Even with the reduction in the projections for this year, the estimate remains well above the ceiling of the target (5.0%), configuring the second consecutive year of disruption of the BC’s main mandate. For the 2023 IPCA, which is rising at 14 weeks, Focus’ current expectation is also above the 4.75% ceiling.

In the June Monetary Policy Committee (Copom), the BC indicated that it aims at something closer to the center of the target than its current projection for 2023 (4.0%). The Focus Bulletin released this Monday also shows a greater de-anchor in the median of 2024, which went from 3.25% to 3.30%, compared to 3.25% a month earlier. The forecast for 2025, in turn, remained at 3.00%, the same level as four weeks ago.

The target for 2024 is 3.00%, with a margin of 1.5 percentage points (from 1.5% to 4.5%). For 2025, the target is also 3.00%, as defined by the National Monetary Council (CMN) in June.

In last month’s Copom, the BC updated its forecasts for inflation with estimates of 8.8% in 2022, 4.0% in 2023 and 2.7% for 2024. The collegiate raised the Selic by 0.50 percentage point, to 13.25% per year.

Financial market economists already expect a deflation in the IPCA in July, with the estimate changing from a high of 0.06% to a drop of 0.28%, according to the Market Focus Report. A month earlier, the projected percentage was up 0.50%.

For August, the forecast in Focus also slowed from a high of 0.18% to 0.16%, compared to 0.36% four weeks ago. For the September index, the estimate ranged from 0.47% to 0.48%, compared to 0.46% a month ago.

Smoothed inflation for the next 12 months increased from 5.45% to 5.16% from one week to another – a month ago, it was 5.91%.

Projection of the Focus Bulletin for GDP

The Focus Bulletin brought a new increase in the median forecast for the expansion of the Gross Domestic Product (GDP) for 2022 in the last week, which rose from 1.51% to 1.59%. A month ago, the estimate was 1.42%. The estimate for GDP expansion in 2023 remained at 0.50%, compared to 0.55% four weeks ago.

Considering only the 21 responses in the last five working days, the estimate for GDP at the end of 2022 went from 1.51% to 1.80%. In the case of 2023, it went from 0.62% to 0.43%, based on 40 responses.

The Focus Report also brought the medians for the high GDP of 2024, which fluctuated from 1.81% to 1.80%, compared to 2.00% a month earlier. In the case of 2025, it continued at 2.00%, the same percentage as four weeks ago.

Data also showed today that the forecast for the indicator that measures the ratio of net public sector debt to GDP for 2022 remained at 59.00%, down from 59.80% a month ago.

The primary balance reflects the balance between government revenue and expenditure, before interest payments on the public debt. The nominal result reflects the balance after interest expenses.

In relation to 2023, the estimate for net debt to GDP remained at 62.00%, from 63.13% a month ago. The median for the primary deficit went from 0.10% to 0.20% of GDP and for the nominal gap remained at 7.60%. The percentages were 0.30% and 7.45%, respectively, four weeks ago.

Financial market economists raised their 2022 trade balance surplus estimate from $68.36 billion to $70.00 billion last week, up from $70.00 billion a month ago, according to the Focus survey. For 2023, the projection went from US$ 60.00 billion to US$ 60.71 billion, compared to US$ 62.40 billion four weeks earlier.

The projection of the current account deficit of the balance of payments in 2022 remained at US$ 18.00 billion in the last week. It was at $16.50 billion a month ago. In 2023, the expectation for the current account gap also remained at US$ 32.30 billion. A month ago, it was US$ 31.95 billion.

For analysts consulted weekly by the BC, the inflow of Direct Investment in the Country (IDP) will be enough to cover the deficit result in these years. The median forecast for the PDI in 2022 went from US$60.00 billion to US$58.40 billion, up from US$58.45 billion a month ago. For 2023, it went from US$ 65.00 billion to US$ 66.15 billion, compared to US$ 62.75 billion four weeks earlier.

Selic in the Focus Bulletin

The projection for the Selic – the basic interest rate – at the end of this year was stable at 13.75% per year in last week’s Market Focus Report, compared to 13.25% a month ago. Considering only the 54 responses in the last five working days, the expectation for the Selic at the end of this year also remained at 13.75%.

In the June Central Bank Monetary Policy Committee (Copom), the Selic rose from 12.75% to 13.25% and the collegiate indicated a new increase of equal or lesser magnitude than in June (0.5pp) for the August. In addition, in the minutes, the Copom signaled that the Selic rate should remain at a “significantly” contractionary level for longer, with the objective that 2023 inflation converges to “around the target”.

Financial market economists also maintained the forecast for the Selic at the end of 2023 at 10.50%, from 10.00% four weeks ago. The forecast for the end of 2024, however, went from 7.75% to 8.00%, compared to 7.50% a month ago. The forecast for the end of 2025 was maintained at 7.50%, repeating the rate of four weeks earlier.

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