The Central Bank projects an inflation peak of 10.6% in the first quarter and sees a high probability of exceeding the target stipulated for the second consecutive year. The data are from the March Quarterly Inflation Report, released this Thursday (24).
The monetary authority designed two scenarios for inflation for this year, based on the trajectory of oil prices. In both, the IPCA (Broad Consumer Price Index) has great chances of being above the ceiling of the target.
The value set by the CMN (National Monetary Council) for this year is 3.5% — with a 1.5 percentage point tolerance up and down.
In the projection of the “alternative” scenario, which uses a downward trajectory for the price of a barrel of oil, inflation accumulated in 12 months reaches a peak of 10.6% in the first quarter, falling to 6.3% at the end of 2022, above the upper limit of the target tolerance range.
In the reference scenario projection, which uses the usual hypothesis for the trajectory of oil prices, inflation accumulated in four quarters is 10.6% in the first two, falling to 7.1% at the end of the year, also above the goal ceiling.
According to the BC, the probability of inflation being above the limit in 2022 jumped from around 41% in the previous report, released in December, to around 88% in the “alternative” scenario, considered more likely by the monetary authority. , and 97% in the baseline scenario.
If the estimate is confirmed, the president of the Central Bank, Roberto Campos Neto, should write a letter to the Minister of Economy explaining the reasons for not meeting the target for the second consecutive year.
​Inflation ended 2021 at 10.06%, the highest since 2015. Last year, the target was 3.75% last year, with a tolerance of 1.5 percentage points up or down
“A significant part of the inflationary surprise in the quarter is related to more volatile components, especially fuel and food prices, but there was also a surprise in items associated with underlying inflation. The various measures of underlying inflation remain above the range compatible with compliance the inflation target”, the report showed.
The BC points out that the main pressure on consumer inflation in the next quarter is due to fuel prices, reflecting the recent rise in oil prices. “Vehicle fuels contributed almost half of the inflation surprise in the quarter,” he said.
The document also says that the impacts of the war between Russia and Ukraine are also expected on free prices, with an important increase on food. “The rise in food prices was also higher than expected, with the impact of extreme weather on in-natura food prices and greater pressure on coffee, oils and fats and baked goods, which are influenced by commodity prices,” he wrote.
“The rise in commodity prices and the prices of imported products — especially since the escalation of the conflict between Russia and Ukraine —, although mitigated by the recent appreciation of the real, can be considered a new supply shock from the point of view of the domestic economy, with an upward impact on inflation and a negative impact on economic activity in the short term,” the BC said in the report.
But the monetary authority made a reservation that the contribution of administered prices to inflation in the quarter will not be greater only due to favorable rainfall conditions. For May, the end of the “water scarcity” flag and the transition to the yellow flag is expected.
As a response to inflation, the escalation of interest rates in Brazil has already completed one year in Brazil. On March 16, the Central Bank’s Copom (Economic Policy Committee) raised the Selic (basic rate) by 1 percentage point, from 10.75% to 11.75% per year. For the next meeting in May, it signaled a new high of the same magnitude.
For GDP (Gross Domestic Product), the growth projection for 2022 was maintained at 1.0% by the BC. The monetary authority’s expectations are still above market projections, which expects a rise of 0.5% for this year, as shown by this week’s Focus survey.
In the document, the BC considered positive and negative factors in its analysis. “The positive surprise in GDP for the fourth quarter of 2021 raises the statistical load for 2022 and suggests, especially when analyzing the evolution of GDP with the alternative seasonal adjustment, that activity was accelerating throughout the second half of 2021” , scored.
Despite the recent worsening of forecasts for agriculture, the BC says that the expectation is that agriculture will still contribute positively to growth in 2022.
On the other hand, he analyzes that “the high fiscal risk and the monetary tightening process underway, more intense than expected at the time of the RI [relatório de inflação] period, continue to impact current financial conditions and, consequently, current and future economic activity.”​
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