XP raises forecast for 2022 inflation;  IPCA goes from 7.4% to 9.2%

XP raises forecast for 2022 inflation; IPCA goes from 7.4% to 9.2%

Bottlenecks in the production chain with “lockdowns” in China and fuel prices made the house raise its projections also for 2023

Some risks that had been monitored by the XP team of analysts were incorporated into the house’s base scenario on inflation in 2022 and 2023. As a result, the projections for the Consumer Price Index (IPCA) were revised upwards in both periods . Now, XP believes that the IPCA should end this year at 9.2% – the previous forecast pointed to 7.4%.

“In our last reports, we have been discussing and quantifying upward biases for our inflation forecasts. Since then, many of these risks have materialized or the probability that they will occur has increased considerably,” wrote economist Tatiana Nogueira.

Some risks that had been monitored by the XP team of analysts were incorporated into the house’s base scenario on inflation in 2022 and 2023. As a result, the projections for the Consumer Price Index (IPCA) were revised upwards in both periods . Now, XP believes that the IPCA should end this year at 9.2% – the previous forecast pointed to 7.4%.

“In our last reports, we have been discussing and quantifying upward biases for our inflation forecasts. Since then, many of these risks have materialized or the probability that they will occur has increased considerably,” wrote economist Tatiana Nogueira.

The house believes that the Covid zero policy in China tends to prolong bottlenecks in the supply chain, causing a new price shock for industrial products.

“Continuing severe mobility restrictions in Chinese cities have increased inflationary pressures, especially on industrial goods. Import delays at the ports of Shanghai have risen significantly, cargo transport within the country has also been suffering many interruptions and factories have reduced production”, emphasizes Tatiana.

The projection for the group of industrialized goods rose from 7.5% to 10%.

Furthermore, parity with the international price of gasoline remains high and “a fuel price readjustment seems to be a matter of time”. XP incorporated, in its scenario, a 10% rise in the price of gasoline this year.

In the house’s assessment, inflation also tends to accelerate on the demand side, with stronger economic activity at the margin, especially in the services sector. Food inflation also increased in XP’s projections, reflecting the effects of shocks and more pressured prices at the margin.

For 2023, the house also increased its forecast for the IPCA, from 4% to 4.5%.

It should be noted that, at the beginning of the month, BNP Paribas raised its forecast for inflation in Brazil from 8.5% to 10% for 2022.

Source: Infomoney

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