Inflation projections rise after ‘surprise’ with the IPCA and some have already surpassed 10%

Several financial institutions revised upwards their projections for the IPCA, an index measured by the IBGE that serves as an inflation target, for 2021, after the release of the October data above the estimates of most part of the financial market.

The revisions are also already contaminating expectations for 2022, which are starting to approach the 5% limit for next year’s target.

There is also a resurgence of discussion about a new acceleration in the pace of increase in the basic interest rate, which at the last Copom (Monetary Policy Committee) meeting of the Central Bank rose from 6.25% to 7.75% per year.

The IBGE informed this Wednesday (10) that the IPCA was 1.25% last month, above the median (1.06%) and also above the ceiling of the market’s projections (1.19%). Since the middle of the year, analysts have expected a 12-month slowdown in inflation, currently at 10.67%, something that has not been confirmed so far.

Bank of America raised its annual inflation forecast from 9.1% to 10.1%, considering the expectation that the next monthly indices will be 0.95% in November and 0.75% in December. The institution maintained its forecast of 5% for the end of 2022.

Citi raised its estimate for this year’s IPCA from 9.5% to 10.4%. He also said he sees upside risks in his 2022 projections for the IPCA, currently at 4.3%, and for the base interest rate, estimated at 11%, according to Reuters.

Nova Futura also extended its expectation of an increase in prices at the end of 2021 to double digits, from 9.4% to 10.1%. For the next two months, the expected rates are 0.94% and 0.77%, respectively. The office even raised its estimate for next year from 4.5% to 4.8%.

Luis Otavio de Souza Leal, chief economist at Banco Alfa, revised the projection for 2021 from 9.3% to 9.7%, which, by inertia, raises the projection for 2022 from 4.6% to 4.7% . For him, interest will reach 10.75% next year.

“The IPCA numbers give little hope that the inflationary process is close to cooling down. For the month of November, we expect a deceleration to levels between 0.85% and 0.90%, which would take the accumulated in 12 months to something between 10.63% and 10.68%, which could represent the first slowdown in this metric since May 2020”, he says.

Tatiana Nogueira, an economist at XP, says that the institution’s projection for 2021, currently at 9.5%, is under review, with an upward bias.

“The month’s surprise above forecast confirms a challenging inflation reading, pressured both by the ongoing transfers of high production costs and by the effect of the acceleration of services prices,” he says.

At Ativa Investimentos, the IPCA expected for this year rose from 9.1% to 9.4%, while that expected for 2022 increased from 3.9% to 4.4%. With this new context, the house reduced its expectation for the GDP (Gross Domestic Product) of 2022 from 0.9% to 0.5%.

Paulo Duarte, chief economist at Valor Investimentos, reassessed the IPCA 2021 from 9.30% to 9.54%. For 2022, the projection rises from 5.55% to 5.63%.

Marcos Mollica, manager of Opportunity Total, says that the pressure for the Copom is growing once again to accelerate the cycle of interest rate hikes, possibly for two more increases of two percentage points, at the next meeting and at the next meeting. With that, the Selic would reach 11.75% per year.

“October inflation measured by the IPCA came in significantly above the consensus of economists, with surprises spread across several components. In particular, core measures remain under heavy pressure, indicating greater persistence of this inflationary shock,” said Mollica.

Camila Abdelmalack, chief economist at Veedha Investimentos, said she will maintain her 9.5% outlook for this year for the time being, but assesses the possibility of correcting upwards after analyzing the highs in the industrial and service sectors.

Abdelmalack also reinforces that fuel, energy and food and beverage prices accounted for more than two-thirds of the October IPCA hike and, in these sectors, the interest rate hikes promoted by the Central Bank have proved insufficient to contain inflation.

“The inflation scenario is quite complicated at the moment because monetary policy is not enough to reverse the rises in administered price expenditures, such as fuel and energy, and in subsistence expenses, such as food and beverages at home,” says Abdelmalack.