Inflation should be negative in June and rise again

Inflation

BC president says future interest rates open room for decline

Brasilia DF) – 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.

“It will take months [com o 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 the Central Bank, 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 more volatile inflation items that contributed positively”

said the BC president.

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 opens up space 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 [Produto Interno Bruto, soma dos bens e serviços produzidos no país] of 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 economy’s performance 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 will have revisions closer to or above 2% [de crescimento] due to the base effect of the first quarter”, he said.

In the March Inflation Report, the Central Bank estimated growth of 1.2% for GDP. In this Monday’s edition of the Focus bulletin, financial institutions project expansion of 1.84%.

*With information from Agência Brasil

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