Risk of inflation breaking the target limit goes to 100% in 2022 and rises to 2023, says BC
The probability of inflation exceeding the limits of the target tolerance range this year rose from 88% in the March estimate to 100%, according to the Quarterly Inflation Report released this Thursday by the Central Bank, which also increased the estimate of the chance of burst in 2023, from 12% to 29%.
“Inflation projections rose throughout the considered horizon,” the BC said in the document.
According to the monetary authority, among the factors that led to the upward revision of estimates are recent higher-than-expected inflation, revision of short-term forecasts, higher oil prices and the spread of inertia inflationary pressures.
The BC also mentioned rising market expectations for inflation, stronger-than-expected economic activity indicators and an increase in the neutral real interest rate.
The inflation target for this year, already abandoned by the Central Bank, is 3.5%, with a tolerance of 1.5 percentage points up or down. For 2023, the current focus of monetary policy, the target is 3.25%, also with the same margin.
The IPCA-15 accelerated again in June and stood at 0.69%, above expectations, with the 12-month rate remaining above 12%.
According to the Central Bank’s current projection, the IPCA accumulated in 12 months will fall to 11.31% in August and will end this year at 8.8%. For the municipality, inflation will be 4.0% at the end of 2023 and 2.7% in 2024.
The report points out that in the quarter ended in May, the variation of the Broad National Consumer Price Index (IPCA) was 1.08 percentage points higher than expected by the BC in its benchmark scenario made in March.
“The inflationary surprise in the quarter was due to the behavior of market prices, especially food. Inflation for services and industrial goods remains high, and recent shocks continue to lead to a sharp rise in food and fuel-linked components,” he said.
According to the BC, the components that are most sensitive to the economic cycle and monetary policy continue with high inflation and there has been acceleration in the various measures of underlying inflation – which disregard more volatile elements.
The report was presented a week late due to the strike by the agency’s servers. The stoppage also caused the document to be presented without the additional boxes with analyzes of themes chosen by the BC, according to the agency’s advisory.
Last week, the BC president said that the worst moment of inflation in Brazil is over and that the country is very close to finishing all the work of raising interest rates to tame the rise in prices.
In June, the Central Bank raised the Selic rate by 0.5 percentage point, to 13.25% per year, and said that it foresees a new adjustment, of equal or lesser magnitude, at the August meeting. The monetary authority did not specify at the time whether this would be the last adjustment of the aggressive cycle of monetary tightening started in 2021.
The BC mentioned that Congress and government initiatives have gained prominence in recent weeks “with significant potential to impact inflation”, but the municipality still considered in this assessment the measure that would zero ICMS on diesel and gas this year, an initiative that was discarded.
According to the document, despite improvements in results and short-term fiscal projections, the perception of the fiscal situation has worsened recently.
RELEVANT SLOW DOWN
In the document, the autarchy also presented preliminary data from the Central Bank’s Economic Activity Index (IBC-Br) dammed up because of the strike. The last issue available so far was that of February.
The organ said that the IBC-Br rose 1.1% in the first quarter compared to the fourth quarter of 2021, noting that the data had a strong recovery in February and March and a moderate fall in April.
The report pointed out that changes in the calendar of government transfers will have a negative impact on the disposable income of families in the second half of the year, contributing to the cooling of consumption. The government brought forward the payment of the 13th of retirees to the first half of the year as a measure to mitigate the effects of inflation.
The monetary authority stressed that the expectation of a relevant deceleration of economic activity in the second half of the year is maintained due to the delayed effect of the aggressive cycle of monetary tightening and due to this change in the calendar.