Inflation should rise less in 2022, but picture worries economists

Inflation tends to decelerate until the end of 2022, but it should still remain a cause for concern in the coming months, economists project.

For most, the scenario carries risks that can generate new negative surprises on prices.

Among the threats of 2022 are possible turmoil in the electoral race, which usually impacts the exchange rate in Brazil, raises prices in the domestic market and puts pressure on inflation.

“It will still be a difficult year, and the uncertainties make it difficult to fight inflation”, says Sergio Vale, chief economist at MB Associados consultancy.

In practice, the term slow down does not represent falling prices. It just means a smaller advance in inflation. That is, prices tend to continue rising this year, but at a weaker level than in 2021.

What worries analysts is the persistence of inflation in a context of weakened economic activity, as is the current case.

I’m 2022, o GDP (Gross Domestic Product) Brazilian market should grow only 0.28%, according to the most recent edition of the Focus bulletin, released by the BC (Central Bank). Some institutions even project a retraction in activity.

The country also runs the risk of registering the second consecutive year of breach of the inflation target pursued by the BC.

In 2022, the target ceiling is 5%. However, financial market analysts project IPCA (Ample National Consumer Price Index) of 5.03% at the end of the year, according to the Focus bulletin. In 2021, the official inflation indicator has already moved away from the target ceiling (5.25%), remaining close to 10%.

“The projection in 2022 is for inflation close to 5%, compared to a year in which the rise was around 10%. The IPCA should lose pace, but continue with a strong advance”, analyzes the chief economist of the Ourinvest bank, Fernando Consort.

Economist João Leal, from investment manager Rio Bravo, follows the same line. “It is a more favorable scenario, but it cannot be considered positive. The picture is still of high inflation”, he says.

According to him, what should cause a deceleration in prices is the action of monetary policy. To try to curb inflation, the BC has been raising the basic interest rate. The Selic is at 9.25% per year and should end 2022 at 11.75%, according to estimates from the main analysis houses gathered in the Focus bulletin.

The BC action, however, is not capable of eliminating all risks from the scenario. Leal mentions that the uncertainties in the global recovery and the electoral race can affect the exchange rate, generating new pressures on prices.

Another risk factor for inflation comes from the weather. At the beginning of the year, the southern region records crop losses due to drought, while states like Bahia and Minas Gerais are impacted by heavy rains. The losses in agribusiness could put pressure on food prices, according to economists.

“A little while ago, the perspective was of a harvest without negative impacts from the climate, but now we already see a greater concern”, says Sergio Vale, from MB Associados.

He assesses that Brazil is in a “very insecure” situation in terms of inflation.

“As inflation is very high, any perception of risk can bring more difficulties.”