The Central Bank (BC) raised its inflation estimate for this year. The revision of the Broad National Consumer Price Index (IPCA) went from 4.7% to 7.1%, above the center of the target set for 2022: 3.5%. The new estimate appears in the Inflation Report released today (24), in Brasília, by the BC and points out that the probability of exceeding the target ranges from 88% to 97%.
According to the publication, the institution works with two scenarios. In the first, considered “benchmark”, inflation projections for 2022 are around 10.6% in the first two quarters of the year, falling to 7.1% at the end of the year and to 3.4% in 2023. scenario has the probability of exceeding the target of 97% and predicts that the basic interest rate, the Selic, will close the year at 12.75%, falling to 8.75% per year in 2023.
The second scenario, considered an alternative, predicts that inflation will close 2022 at 6.3%, falling to 3.1% in 2023. This environment considers the hypothesis of a drop in the international price of oil, reducing the impact of the product on the high of prices in the country. In this regard, the BC adopts the premise that the price of oil approximately follows the future market curve until the end of 2022, ending the year at US$ 100 a barrel and increasing 2% per year from January 2023 The probability of breaking the target is 88%.
conflict in Europe
According to the Central Bank, the external environment, with the conflict between Russia and Ukraine, led to a significant tightening of financial conditions and increased uncertainty around the world economy. In particular, because of the supply shock resulting from the conflict, which “has the potential to exacerbate the inflationary pressures that have already been accumulating in both emerging and advanced economies.”
“Rising prices for commodities and 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 negative impact on economic activity in the short term,” the report said.
In the internal environment, the BC said that, despite monthly indicators having shown a decline in economic activity in January, a recovery of the economy is expected in February and March with the improvement of the pandemic.
The outlook is favorable for some specific sectors, such as agriculture and economic activities that are still in the process of recovering from the negative impacts of the new coronavirus -covid-19 pandemic.
The report, however, stated that consumer inflation remains high, “with a spread across several components, and more persistent.” The BC also said that a significant part of this inflation is related to fuel and food prices, but there was also a surprise in items associated with underlying inflation, which measures the price trend. According to the document, “the various measures of underlying inflation remain above the range compatible with meeting the inflation target.”
The Central Bank also highlighted that the high fiscal risk and the ongoing monetary tightening process continue to impact current financial conditions and, consequently, current and future economic activity.
“The current high level of domestic economic uncertainty acts in the same direction. In this context, the growth projection for the Gross Domestic Product (GDP – the sum of all the wealth produced in the country) in 2022 was maintained at 1.0%”, specified the report.
Selic rate
The same document reaffirmed the willingness of the Monetary Policy Committee (Copom) to raise the Selic rate again by one percentage point, currently at 11.75% per year. According to the report, this decision reflects the uncertainty surrounding the economic scenario and a balance of risks “with an even greater variance than usual for inflation”. The rate could be readjusted “to ensure the convergence of inflation to its targets”.
