The Ministry of Economy raised this year’s inflation expectation from 6.55% to 7.9% and maintained its GDP (Gross Domestic Product) growth forecast for 2022 at 1.5%.
The ministry’s projections released this Thursday (19) are in the Macrofiscal Bulletin, updated bimonthly by the SPE (Secretariat of Economic Policy). Previous data had been announced by the ministry in March and are periodically reviewed because they serve as a reference for adjusting budget execution.
The forecast rate of 7.9% for the IPCA (Broad Consumer Price Index) exceeds the target to be pursued by the Central Bank. The value set by the CMN (National Monetary Council) for this year is 3.5% — with a 1.5 percentage point tolerance for more or less.​
The government’s inflation figures are in line with market expectations. The Focus bulletin, which brings forecasts made by analysts and gathered by the BC, is outdated. Due to the strike by the civil servants of the municipality, the last survey was released on April 29. In it, economists estimated that the IPCA should advance 7.89% this year and 4.10% in 2023.
The perception of a worsening inflationary scenario has spread among analysts. Credit Suisse sees the IPCA rising 9.8% this year, while XP Investimentos has revised its forecast to 9.2%. In a survey carried out by the brokerage, from May 13 to 15, with 45 economists and investors, the median of the estimates indicated inflation for 2022 at 8.80%.
The BC already admits a high probability of a new inflation target burst. If the projection is confirmed, the president of the municipality, Roberto Campos Neto, should write a new letter to the Minister of Economy explaining the reasons for the non-compliance with the objective for the second consecutive year. ​Inflation ended 2021 at 10.06%.
The portfolio’s estimate for the INPC (National Consumer Price Index) rose from 6.7% to 8.1%. This index is used to correct the national minimum wage floor and other social benefits. Based on this calculation basis, the minimum wage, which today is R$1,212, tends to be corrected in 2023 to R$1,310, if there is no real gain.
The SPE’s projection for the IGP-DI (General Price Index – Internal Availability) jumped from 10.01% to 11.40%. This index has a wider scope to measure the rise in prices, as it also encompasses the wholesale sector and civil construction.
As a response to rising inflation, the escalation of interest rates in Brazil has already completed more than a year in Brazil. On May 4, the Central Bank’s Copom (Monetary Policy Committee) raised the basic interest rate (Selic) by 1 percentage point, from 11.75% to 12.75% per year. For the next meeting, in June, it signaled a likely further interest rate hike of a smaller magnitude. This means that the monetary tightening cycle is not over yet.
The increase in the Selic rate is one of the factors that helps to slow down the country’s economic activity. But despite rampant inflation and a tight monetary policy, there was stability in the government’s account for economic expansion in 2022.
Given the lag in monetary policy, the effects on the economy should be felt more strongly in the coming year.
“The improvement in the performance of the Brazilian GDP has been due to the recovery in the services sector and the expansion of investments, which has been reflected in the robust recovery of the labor market”, says the report.
With the growth of economic activity in recent months, the market estimate has been approaching the performance calculated by the government. According to the latest Focus released in April, economists expected GDP to grow by 0.70% this year.
But given the BC publication gap, the number does not reflect analysts’ current expectations. According to a survey by XP Investimentos, in the last week, the median growth projection is 1.10% in 2022. The broker, in turn, raised its estimates and predicts a 1.6% increase for this year’s GDP.
The Independent Tax Institution (IFI) revised its forecasts upward, expecting economic growth of 1%, while Bank of America raised its forecast for economic expansion by 1 percentage point, to 1.5%.
Minister Paulo Guedes (Economy) even criticized financial market analysts for what he considered “excessive pessimism” and has repeated that Brazil “is doomed to grow.” For him, the market was underestimating the country’s growth potential in 2022.
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