Inflation in 2023 closed at 4.62% and almost did not reach target

Brazilian inflation closed 2023 at 4.62%, according to data from the Brazilian Institute of Geography and Statistics (IBGE). It is the first time in two years that it has closed within the target, but close to the ceiling. The National Monetary Council (CMN) set the inflation target for 2023 at 3.25% with an interval of 1.5 percentage points up and down

The biggest price increases were in education (8.24%), transport (7.14%) and health and personal care (6.58%).

In December, inflation was 0.56%, driven by food and beverages, which increased by 1.11%. The increase is related to the climate phenomenon “El Niño”, which causes heavier rains in the South and Southeast and a lack of rain in the North and Northeast.

According to analyst Laís Costa, from Empiricus Research, the number released this Thursday should not lead to a change in strategy by the Central Bank, which should continue reducing the Selic by 50 basis points in the first two meetings of this year. “However, the market should erase the (little) chances of any acceleration in the rate of interest cuts in this rate reduction cycle,” she says.

The median of analyst projections in the Focus bulletin for inflation in 2024 is 3.9%. But there are warning signs, points out Igor Cadilhac, economist at PicPay:

• The situation of the agricultural commodities market, and the effects of El Niño on cereals, legumes and oilseeds, and
• Wage increases given low unemployment, recent real gains and the minimum wage rule

Another factor that requires caution, according to an assessment by Luciano Costa, chief economist at Monte Bravo Investimentos, is the reduction in the deflation effect of industrial goods. “These are factors that require caution in the conduct of monetary policy, especially in an environment of continued real spending growth.”