Inflation is expected to close the year at 4.6%, points out the Central Bank

The country’s inflation, measured by the Broad Consumer Price Index (IPCA), is expected to close the year at 4.6%, and the chance that the index will exceed the target has fallen from 67% to 17%. The information is contained in the third quarter inflation report, released this Thursday (21) by the Central Bank (BC).

Defined by the National Monetary Council (CMN), the inflation target for this year is 3.25%, which may range between 1.75% and 4.75%.

“In terms of estimated probabilities of inflation exceeding the limits of the tolerance interval, the reference scenario highlights the significant reduction in the probability of inflation remaining above the upper limit of the target for 2023 (4.75%), which went from around 67% in the previous report to 17% in this report. This change reflects the drop in the projection for 2023 (from 5.0% to 4.6%) and the reduction in uncertainty associated with a shorter projection horizon”, explains the document.

The report also cites the decision of the Monetary Policy Committee (Copom) to reduce the basic interest rate by 0.50 percentage points, to 11.75% per year (aa), and says that the decision is compatible with the convergence of inflation around the target over the relevant horizon, which includes the years 2024 and 2025.

“If the expected scenario is confirmed, the Committee members unanimously foresee a reduction of the same magnitude in the next meetings and assess that this is the appropriate pace to maintain the contractionary monetary policy necessary for the disinflationary process. The Committee emphasizes that the total magnitude of the easing cycle over time will depend on the evolution of inflationary dynamics, especially the components most sensitive to monetary policy and economic activity, inflation expectations, particularly longer-term ones, their projections of inflation, the output gap and the balance of risks”, says the report.

In the BC’s assessment, the external environment remains volatile, with significant movements in longer-term interest rates in the United States, initially rising and more recently retreating and with core inflation remaining at high levels in several countries.

The BC assesses that the central banks of the main economies remain determined to promote the convergence of inflation rates towards their targets in an environment marked by pressures in the labor markets and that the scenario continues to require caution on the part of emerging countries.

“Global activity continues to demonstrate resilience in the face of the tightening of monetary policy, the stress events in the international banking sector that occurred in the first half of the year, the continuation of the conflict in Europe and the new conflict in the Middle East. Global growth remains below its potential, but is still supported by a buoyant job market and household consumption, supported by real income gains, while international trade and industrial production remain moderate. The services sector continues to be the highlight of growth, reflecting changes in the profile of family consumption and robust job markets”, says the report.

In the domestic scenario, the outlook is for a slowdown in growth in the third quarter, with growth of 0.1%, after a strong increase in the previous quarter. Even so, the bank highlighted that this growth was slightly higher than expected.

“The increase in household consumption stands out, especially of services and non-durable consumer goods. On the other hand, investments have been declining for four quarters. The trade balance is expected to present a record balance in 2023, contributing to a moderate current account deficit”, says the report.

GDP

The bank also revised the forecast for the Gross Domestic Product (GDP, sum of goods and services produced in the country) increasing from 2.9% to 3% this year. For 2024, the forecast went from 1.8% to 1.7%.

“The prospective scenario includes an increase in the pace of growth over the next year, with moderation in household consumption, resumption of investments, and maintenance of a favorable balance in external accounts”, says the document.

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