Monetary market analysts cut back to five.74% inflation estimate in 2022

This is the 14th consecutive drop in investor expectations for inflation. Despite the retreat, BC sees a great chance of bursting the target ceiling, which is 5% this year.

Financial market economists reduced the inflation estimate for this year from 5.88% to 5.74%. It was the 14th drop followed by the 2022 inflation estimate.

The information is contained in the “Focus” report, released this Monday (3) by the Central Bank. More than 100 financial institutions were heard last week.

In addition to the drop in the inflation estimate, economists also project a higher GDP growth and interest rate stability until the end of 2022. See details below.

The higher the inflation, the lower the purchasing power of people, especially those with lower wages. This is because the prices of products increase without the salary necessarily accompanying this growth.

The inflation target for this year, defined by the National Monetary Council (CMN), is 3.5% and will be considered fulfilled if it fluctuates between 2% and 5%. The Central Bank sees a great chance of exceeding the target in 2022, as happened last year.

To reach the target, the Monetary Policy Committee (Copom) of the Central Bank increases or decreases the basic interest rate, the Selic. Currently, the Selic is at 13.75% per year, the highest percentage in the last six years.

For next year, the central inflation target was set at 3.25% and will be considered formally fulfilled if it fluctuates between 1.75% and 4.75%. According to the Focus newsletter, the forecast for 2023 was stable at 5%.

ICMS on essential items

The further reduction in the 2022 inflation estimate coincides with the cut in taxes on essentials such as fuel and electricity. These products alone already impact inflation. In addition, they indirectly influence the prices of other items.

For example, if the price of diesel increases, the transport of a certain product becomes more expensive. The owner of the store that resells that product then passes the increase on to the consumer, who ends up paying more for the same item. Lowering taxes in an election year was a strategy adopted by the government and Congress.

In addition to the reduction in taxes, the strong deceleration in the level of world activity has also contributed to the fall in inflation by having a downward impact on the prices of “commodities” (basic products with international prices, such as oil and food).

Gross Domestic Product

The financial market also began to predict a greater increase in Gross Domestic Product (GDP) in 2022.

The new increase comes after the release of the result for the second quarter, with an increase of 1.2%.

The forecast of bank economists is that the Brazilian economy to grow 2.70% in 2022against the 2.67% forecast previously.

As for 2023, the growth forecast advanced from 0.50% to 0.53%.

GDP is the sum of all goods and services produced in the country and serves to measure the evolution of the economy.

When sanctioning the law that provides the guidelines for the 2023 budget, the government informed that the forecast is for GDP to grow 2.5% next year.

Interest rate

The financial market maintained its expectation for the economy’s basic interest rate, the Selic, at 13.75% per year at the end of 2022.

Currently, the Selic rate is already at this level. The Copom has also been signaling that interest rates will remain high for a longer period.

As for the end of 2023, market expectations for the Selic rate remained at 11.25% per year. With this, the financial market continues to estimate a drop in interest rates next year.

other estimates

See below for other financial market estimates, according to the BC:

• Dollar: the projection for the exchange rate for the end of 2022 remained stable at R$ 5.20. For 2023, it also remained unchanged at R$ 5.20.
• Trade balance: for the trade balance (result of total exports minus imports), the projection dropped from US$ 62 billion to US$ 61.50 billion of positive result in 2022. For next year, the estimate of market specialists remained stable at around US$ 60 billion surplus.
• Foreign investment: the report’s forecast for the inflow of foreign direct investment into Brazil this year increased from US$ 61 billion to US$ 65 billion. For 2023, the estimate remained unchanged at $65 billion in inflows.

Source: G1