Inflation should be negative in June and rise again

Official inflation based on the Extended National Consumer Price Index (IPCA) could turn negative in June and rise in the second half, said this Monday (12) the president of the Central Bank (BC), Roberto Campos Neto. In an event promoted by the Institute for Retail Development (IDV), he said that the index should end the year with an improvement in relation to initial forecasts.

“There will be months (with the IPCA) between 0.4% and 0.5% at the end of the year, which will make inflation for the year more or less between 4.5% and 5%, closer to 4.5%. This is an improvement over what we expected, but a slow improvement”, declared Campos Neto.

In the most recent edition of the Inflation Report, released in March, the monetary authority predicted that the IPCA would end the year at 5.8%. This Monday’s edition of the Focus Bulletin, a weekly survey of financial institutions carried out by BC, points to an expectation of 5.42% for the IPCA this year.

According to Campos Neto, the drop in the price of commodities (primary goods with international quotation) has contributed to hold back inflation. He, however, warned that the average of core inflation (which excludes prices with greater volatility) is falling more slowly and remains higher than the final indices.

“We still have an average number of cores of 6.7%. Inflation in Brazil is much lower than in advanced countries for the first time in history. This means that we have a job that was done that was effective and that there are some items in the more volatile inflation that contributed positively”, said the president of the BC.

Fees

During the event, Campos Neto received several requests from the president of the Institute for Retail Development (IDV), Luiza Trajano, to start reducing the Selic Rate (basic interest rates for the economy). According to the BC president, the behavior of the financial market, where future rates have dropped significantly in recent days, favors a loosening of monetary policy, but not now.

“The future interest curve fell by almost 3% depending on the term you look at. This means that the market is giving credibility to what is being done, which makes room for monetary policy action ahead,” he said.

For Campos Neto, there are good surprises in economic activity and inflation in 2023, despite the fact that agriculture has driven economic growth in the first quarter. “A relevant part of GDP (Gross Domestic Product, sum of goods and services produced in the country) in the first quarter came from agriculture, but services also came in strong. Trade and industry have started to show improvement,” he said.

According to Campos Neto, the performance of the economy in the first quarter opened up room for upward revisions of the growth estimate in 2023. “With the number for the first quarter, it will be difficult for the revision to stop there. Most likely, we are going to have revisions closer to or above 2% (of growth) by Q1 base effect,” he said.

No March Inflation Reportthe BC estimated growth of 1.2% for GDP. In this Monday’s edition of the Focus bulletinfinancial institutions project growth of 1.84%.