Campos Neto sees contaminated inflation and defends raising the Selic rate at a hearing in the Chamber

The president of the Central Bank, Roberto Campos Neto, defended this Tuesday (31) the increase in the basic interest rate (Selic) in the face of persistent inflationary pressure observed in energy and food and the contamination of the rest of the chains.

“Some people might say that if it’s energy and food inflation, the Central Bank shouldn’t be raising interest rates because they are very volatile elements that will eventually fall. The problem is that when you have volatile elements that get a price high for a long time, they start to contaminate the rest of the chain and the cores start to rise. This is what the Central Bank has been doing”, said Campos Neto in a public hearing at the Consumer Defense Commission of the Chamber of Deputies.

The BC president said that Brazil faces very high inflation, with the core hitting 9.55%, and high contamination.

The hearing, requested by Deputy Silvio Costa Filho (Republicans-PE), aimed to discuss measures to combat inflation and increase the Selic rate.

In the 12-month period up to April, the IPCA was 12.13%, the highest level since October 2003 (13.98%). On Tuesday of last week (24), the IPCA-15 (Extended National Consumer Price Index-15) reached 12.20%, with an increase of 0.59% in May, compared to an increase of 1.73% in the previous month, informed the IBGE (Brazilian Institute of Geography and Statistics). The indicator came higher than expected by the market.

According to Campos Neto, “inflation is the worst element in terms of income distribution and planning.” The BC’s job, he said, is to do its best to bring the indicator to the target – even though the monetary authority has already recognized that there is a high probability of a burst in 2022 for the second consecutive year.

The objective set by the CMN (Conselho Monetário Nacional) to be pursued by the BC for this year is 3.5% — with a 1.5 percentage point of tolerance up or down.​

On May 4, the Central Bank’s Copom (Monetary Policy Committee) raised the Selic rate by 1 percentage point, to 12.75% per year. For the next meeting, in June, it signaled a probable further rise of a smaller magnitude. Considering the lag in the effects of monetary policy on the economy, the BC already looks to 2023 as a horizon.

“Our job is always to do as much as possible for inflation to be on target, but always looking at what I can do to make this process happen with the least possible destruction of the economy’s productive fabric. This is the great task,” he told parliamentarians.

At the hearing, Campos Neto highlighted that GDP (Gross Domestic Product) growth for 2022 should be revised upwards. In the last quarterly inflation report, the BC estimated a 1% increase in GDP for this year. Economists, in turn, have shown more optimism recently and have started to project a rise of 1.5% or 2%.

“When we look at the IMF projections, Brazil is one of the only cases where the growth forecast has risen in recent months for the year 2022. In fact, it will go up more than what is here, we had meetings last week with economists, the average of market economists is already between 1.5% and 2%”, he said.

As for the job market, the president of the BC spoke of a positive surprise in the data reported by the IBGE (Brazilian Institute of Geography and Statistics) this Tuesday.

According to the institute, the unemployment rate dropped to 10.5% in the quarter ended in April. It is the lowest mark for the period since 2015 (8.1%), when the economy faced a recession.

According to Campos Neto, it is already possible to see a level of unemployment below double digits this year.

“We generated more jobs with lower incomes, this is the reality, but it has been a surprising job generation movement in recent months,” he said.

“We are starting to talk about unemployment this year, which will be below double digits, remembering that before the pandemic it was 12%. We have a much better level of unemployment than before the pandemic”, he added.