fall in investment and resilience in consumption are risks

A new source of concern regarding inflation surrounds the Central Bank’s Monetary Policy Committee (Copom). “The persistence of a conjunction of greater resilience in consumption and a drop in investment could cause, in the medium term, an excess of demand in relation to supply, with potential impacts on prices”, says the minutes released this Tuesday ( 19) in the morning explaining the reasons for the interest rate drop to 11.75% per year.

Productive investment, known by economists as gross fixed capital formation, accumulates four quarterly drops compared to the previous three months. Family consumption has accumulated nine consecutive increases.

According to the Brazilian Institute of Geography and Statistics (IBGE), in the last 12 months, consumption increased by 3.7% compared to the previous period, while investment shrank.

The coordinator of national accounts at the Brazilian Institute of Economics at Fundação Getulio Vargas (FGV Ibre), Claudio Considera, says that consumption is being driven by the more resilient job market and growth in income.

Another factor that may be favoring consumption is the improvement in families’ financial conditions. They are still delicate, but the worst-case scenario may be behind us. Interest rates are also helping. The average rate charged to individuals was 3.74% per month in October. It is the fifth consecutive month of decline and the lowest rate since September 2022.

One of the factors that hinders investment, according to Considera, is uncertainty about the economy. “The entrepreneur wants to know how much his tax-free net profit will be,” he says. Until this is clear, he will be fearful.”