War makes economists raise inflation forecast in Brazil

With the war between Russia and Ukraine, oil and agricultural commodities soared earlier this week. Anticipating transfers to final fuel and food prices, economists in Brazil already see inflation taller.

For now, projections point to the IPCA (Broad Consumer Price Index) in the range of 6% at the end of 2022 — a greater advance is not ruled out by the financial market.

If the estimates are confirmed, inflation will once again burst the target ceiling, set at 5% for this year.

Although it reflects the scenario until last week, the most recent edition of the Focus bulletin, released this Monday (7) by the BC (Central Bank), returned to estimate a higher IPCA in 2022.

At the median, market forecasts for the indicator were closer to 6%, from 5.60% to 5.65%. It was the eighth consecutive week of growth.

The chief economist at Necton Investimentos, André Perfeito, assesses that projections should rise again in the coming weeks, in the wake of geopolitical tension and new pressures on commodity prices.

According to Perfect, Necton should raise its IPCA estimate in 2022 from 5.81% to 6% in the coming days. “The projections begin to reflect the impacts of the war”, he says.

This Monday, the manager Santander Asset increased its forecast for this year’s IPCA, from 5.4% to 5.9%. The bias is up — that is, the trend is for new advances.

According to the chief economist at Santander Asset, Eduardo Jarra, the 5.9% reflects the price scenario for industrial goods and services still under pressure at the start of the year in Brazil.

Jarra reports that the review still does not consider the effects of the war in Ukraine, although he understands that the conflict will have an impact on inflation in Brazil.

The question that remains unclear is the magnitude of the shock on final prices, says the economist.

“We still don’t know the intensity, but the worsening of global inflation has materialized. There is already a certainty: it will affect the projections”, points out Jarra.

With persistent inflation in Brazil, Santander Asset also revised upwards its estimate for the basic interest rate. Now, the institution sees the Selic at 12.25% at the end of 2022, in line with the median of the Focus. The previous forecast was 11.75%.

The consultancy MB Associados also raised the estimate for the IPCA, from 5.8% to 6.5%, with the impact of food and transport prices.

Stronger inflation is seen as a reflection of the conflict in Eastern Europe. MB also increased the projection for the Selic, from 12.25% to 13%, above the median of the Focus.

“More inflation and interest means less income and credit and reinforces the stagnation of the economy this year, with risks of a drop in GDP [Produto Interno Bruto]”, indicates the consultancy.

In January, the IPCA rose 0.54%, the highest for the period since 2016, according to the IBGE (Brazilian Institute of Geography and Statistics). With the result, the accumulated in 12 months reached 10.38%, the highest since November 2021 (10.74%).

The February IPCA will be released on Friday (11) by the IBGE. Necton Investimentos, for example, is betting on a high close to 1% in the month, with pressured food prices, points out André Perfeito, chief economist at the brokerage.

Oil at highest level since 2008

Oil prices rose to their highest levels since 2008 on Monday, with a barrel of Brent oil topping $139, as the United States and its European allies weighed a ban on imports of Russian oil. The measure would add to the various sanctions adopted against the Kremlin after the invasion of Ukraine.

At the same time, futures for grains such as wheat, soybeans and corn were also trading at their highest levels in years, affected by fears of tight supply in the face of tension in Eastern Europe.

The surge in commodities such as oil puts pressure on the Jair Bolsonaro (PL) government on the eve of the elections. It is because the international quotations of the product serve as a reference for the values ​​of the fuels practiced by Petrobras in the refineries.

With the rise in the midst of the conflict in Ukraine, the market points to a lag in domestic prices, which would open room for further increases in Brazil.

In an interview with a radio station in Roraima, Bolsonaro criticized the international parity adopted by Petrobras on Monday. The president advocated a review of fuel policy.

One of the proposals on the government table would be the implementation of a subsidy program similar to the one adopted by the Michel Temer government (MDB) during the 2018 truck drivers strike.

The chief economist at Órama Investimentos, Alexandre Espirito Santo, believes that a measure along these lines could mitigate the impacts of the war and “postpone the problem” of prices in Brazil.

In the case of food, Espirito Santo understands that new advances are inevitable. In addition to high prices for items such as wheat and corn, there is pressure from fertilizers.

Russia, from whom Brazil imports, recommended that manufacturers suspend exports of inputs used in crops.

“Food prices will rise. There is no way around it. We are talking about expressive highs in products such as corn and wheat”, says Espirito Santo.

Wheat serves as an input for the production of items such as breads, pasta and cookies. Corn, on the other hand, impacts eggs and poultry, for example, because it is used to feed chickens.

Órama’s most recent projection is an IPCA of 5.2% this year, but the number should be revised upwards during the week, according to Espirito Santo.

with Reuters