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Financial market inflation estimate rises to 3.2% this year

Posted by Marina
The financial market increased the inflation estimate for this year. The forecast for the Extended National Consumer Price Index (IPCA) rose from 3.02% to 3.20%, according to the Focus bulletin, a publication released every week by the Central Bank (BC), with the projection for main economic indicators.

Last Friday (6), the Brazilian Institute of Geography and Statistics (IBGE) reported that the IPCA reached 0.86% in October this year, the highest rate of the indicator for the month since 2002 (1.31%) . With the October result, the IPCA accumulates inflation rates of 2.22% in the year and 3.92% in 12 months.

For 2021, the inflation estimate went from 3.11% to 3.17%. The forecast for 2022 and 2023 did not change: 3.50% and 3.25%, respectively.

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The projection for 2020 is below the center of the inflation target that should be pursued by the Central Bank. The target, defined by the National Monetary Council, has a center of 4% in 2020, with a tolerance interval of 1.5 percentage points up or down. That is, the lower limit is 2.5% and the upper limit, 5.5%.

For 2021, the target is 3.75%, for 2022, 3.50%, and for 2023, 3.25%, with a range of 1.5 percentage points up or down, each year.

Selic

To reach the inflation target, the Central Bank uses the basic interest rate, the Selic, as its main instrument. On the last 28th, the Monetary Policy Committee (Copom) decided to keep the Selic rate at 2% per year. For Copom, despite the increase in the price of food and industrial items, the effect on inflation will be temporary.

The expectation of financial institutions is that the Selic will end 2020 at 2% per year. By the end of 2021, the basic rate is expected to reach 2.75% per year. For the end of 2022, the forecast is 4.5% per year and for the end of 2023, 5.5% per year.

When the Copom reduces the Selic rate, the tendency is for credit to become cheaper, with incentives for production and consumption, reducing the control of inflation and stimulating economic activity. However, banks consider other factors when defining the interest charged to consumers, such as default risk, profit and administrative expenses.

When the Copom raises the basic interest rate, the objective is to contain heated demand, and this causes reflections in prices because higher interest rates make credit more expensive and stimulate savings.

And when the Selic is maintained, the Copom considers that previous adjustments were sufficient to keep inflation under control.

Economic activity

The financial market forecast for the fall of the Brazilian economy this year was adjusted from 4.81% to 4.80%.

For the next year, growth expectations went from 3.34% to 3.31%. In 2022 and 2023, the financial market continues to project an expansion of 2.50% of GDP.

Dollar

The forecast for the dollar exchange rate remained at R $ 5.45, this year, and R $ 5.20, in 2021.


Source: DATAGRO

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