Campos Neto says inflation may rise in 2023 and that fiscal framework worries

The president of the Central Bank, Roberto Campos Neto, said this Monday (12) that Brazil is experiencing a moment of high inflation that could intensify even more in 2023.

According to Campos Neto, the measures adopted by the government in recent months – such as reducing taxes and expanding social programs – helped to hold back the inflationary escalation, but these actions should not maintain the same effect for 2023 and 2024.

“We need to understand how these measures will dissipate, it is difficult to model this. It is as if you had government measures pushing inflation down, but the components of subsequent years are stronger than the inertia that generates the fall of the current year,” said Campos Neto at an event promoted by the Millennium Institute.

The BC president says that, in addition to world inflation, the water crisis and the increase in food production costs were more intense in the country, which contributed to a general rise in the prices of goods and services. However, he says he sees room for improvement in prices.

Concern about tax situation

Campos Neto said he was concerned about the country’s fiscal situation for the coming year, given the possibility that the government would continue with recently announced measures. Last month, the government launched a package of benefits at a cost of R$41.25 billion.

Among the measures adopted by the government of Jair Bolsonaro (PL) is the expansion of Auxílio Brasil – which now has a minimum installment of R$ 600 between August and December, and the creation of the Auxílio Caminhoneiro and Auxílio Taxi drivers, which are expected to be paid until December 2022.

“There have been some big measures recently, I won’t go into the merits of whether it’s necessary or not, but there is anxiety about how these measures will be financed if they are extended to next year,” he said. “There is nothing more permanent than a temporary government program,” he said.

According to the president of the Central Bank, it is not his responsibility to explain the effects of the government’s measures on the country’s fiscal situation, but the market is anxious to know if there will be a tax compensation.

Unemployment rate will continue to fall

During the event, Campos Neto said that the unemployment rate in Brazil could fall even further and reach 8.5% this year. He also said that the average income of the worker, which registered a fall in Brazil, already shows signs of increase.

In Brazil, the unemployment rate dropped to 9.3% in the second quarter. According to the IBGE, it is the lowest level for this period since 2015. At the time, the indicator was at 8.4%, and the economy was going through a recession.

“The labor part was the most surprising, we would never have imagined that we would be talking about an unemployment rate below 9%. There is a structural change in that”, he said.

“In the beginning, we had a change from higher to lower wages, so we had an increase in employment, but with average income stable or falling. This started to change in the most recent numbers. Other countries also have this trend of structural change in the workforce, but Brazil, in terms of Latin America, stands out”.