Financial market inflation forecast drops to 6.02% in 2023
For 2024, the inflation projection was 4.16%. For 2025 and 2026, forecasts are for inflation of 4% for both years.
The estimate for this year is above the ceiling of the inflation target that must be pursued by the Central Bank. Defined by the National Monetary Council (CMN), the target is 3.25% for 2023, with a tolerance interval of 1.5 percentage points up or down. That is, the lower limit is 1.75% and the upper limit is 4.75%. According to BCthe chance of official inflation exceeding the target ceiling in 2023 is 83%.
The market’s projection for 2024 inflation is also above the center of the expected target, set at 3%, but still within the tolerance range of 1.5 percentage points.
In March, inflation decelerated for all income brackets. Even so, driven by the increase in fuel prices, the IPCA stood at 0.71%, according to the Brazilian Institute of Geography and Statistics (IBGE). The result is lower than the February rate: 0.84%. In 12 months, the indicator accumulates 4.65%, below 5% for the first time in two years.
for april, the Extended National Consumer Price Index 15 (IPCA-15) – which measures the preview of official inflation – was 0.57% this year. The rate is lower compared to March 2023 (0.69%) and April 2022 (1.73%). The IPCA for April will be released by the IBGE next Friday (12).
basic interest
To reach the inflation target, the Central Bank uses the basic interest rate, the Selic, as its main instrument, set at 13.75% per year by the Monetary Policy Committee (Copom). The rate has been at this level since August last year and is the highest level since January 2017, when it was also at this level.
Last week, even with pressure from the federal government for Selic reductiono Copom maintained the rate at 13.75% for the sixth time in a row. The effects of the monetary tightening are felt in the rise of credit and the slowdown of the economy.
The decision to maintain the Selic was expected by the financial market, with the forecast that it will remain at this level until, at least, the August Copom meeting. According to today’s Focus Bulletin survey, the Selic is expected to end 2023 at 12.5% per annum.
When the Copom raises the basic interest rate, the purpose is to contain heated demand, and this affects prices because higher interest rates make credit more expensive and stimulate savings. Thus, higher rates can also make it harder for the economy to expand. But, in addition to the Selic, banks consider other factors when defining the interest charged to consumerssuch as default risk, profit and administrative expenses.
When the Copom decreases the Selic, the tendency is for credit to become cheaper, with incentives for production and consumption, reducing control over inflation and stimulating economic activity.
By the end of 2024, the market estimate is that the base rate will drop to 10% per year. As for the end of 2025 and 2026, the forecast is for Selic at 9% per year, for both years.
GDP and exchange rate
A projection of financial institutions for the growth of the Brazilian economy this year remains at 1%, the same as last week.
For 2024, the expectation for the Gross Domestic Product (GDP) – the sum of all goods and services produced in the country – is for growth of 1.4%. For 2025 and 2026, the financial market projects GDP growth of 1.8% for both years.
The estimate for the dollar exchange rate is R$ 5.20 for the end of this year. By the end of 2024, the forecast is that the US currency will remain at R$ 5.25.
Foto de © Marcello Casal JrAgência Brasil
Economia,banco central,Boletim Focus,Selic,Juros,dólar,Inflação
