July inflation was above what the market expected, but part of services ‘was a little better’, assesses BC president

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The IBGE reported earlier that the country’s official inflation amounted to 0.12% in July. As a result, the country now has an accumulated inflation of 3.99% in the 12-month window. In the year, it accumulates a high of 2.99%. Former financial market executive, Campos Neto is president of the BC and his mandate ends at the end of 2024 Reuters via BBC The president of the Central Bank, Roberto Campos Neto, assessed this Friday (11) that the result of official inflation came in above what the financial market had expected. He gave a lecture at the Business Management Forum of the Federation of Commercial and Business Associations of the State of Paraná (Faciap). However, Campos Neto added that the inflationary pressure arising from the service sector, which the Central Bank has been paying more attention to, “was a little better”. The institution has said that service inflation is an important factor for the IPCA to converge to predefined targets. The Brazilian Institute of Geography and Statistics (IBGE) reported earlier that the Extended National Consumer Price Index (IPCA), an indicator considered the country’s official inflation, was 0.12% in July. “Looking at inflation in Brazil, today a number came out, the IPCA this morning, 0.12% [inflação de julho], slightly above what the market expected. We are still looking at the number from the inside. But we see inflation returning to the target. We look at inflation in twelve months, it is a bit ‘polluted’ because we had the exemption last year, in the second half [dos combustíveis durante as eleições], which pushed inflation down a lot”, declared Campos Neto. This Thursday (10), during a hearing at the Federal Senate, the president of the Central Bank informed that, due to the reduction in fuel prices at the end of last year, a factor that will not be repeated in the same period this year, official inflation “will have an upward movement in twelve months from now until the end of the year”. Inflation in July Brazilian inflation had been decelerating since February. The indicator reached a deflation of 0, 08% in June, but this month accelerated again, driven by the Transport group (1.50%) and with emphasis on gasoline (4.75%).In July 2022, the IPCA also had a deflation of 0.68% With this, the country now has an accumulated inflation of 3.99% in the 12-month window. In the year, it accumulates an increase of 2.99%. With a 0.31 percentage point impact on the general index, gasoline was the main highlight, with fuel gaining 4.75% in the month, in addition to contributing 0.23 pp to the IPCA. Services inflation decelerated in July, rising to 0.25% in the month, compared to 0.62% in June. With that, the accumulated in 12 months fell to 5.63%. Public accounts Campos Neto once again said that the results of public accounts impact the Central Bank’s decisions on the basic interest rate, which had, this month, its first reduction in three years – to 13.25% per year. He noted that the financial market still does not believe that the government’s accounts will have their deficit zeroed in 2024 – according to the target contained in the proposed fiscal framework, the new rule for public accounts. The project has already passed through the House and Senate, but needs a new analysis by the deputies to be valid. “It needs to balance the finances to have a long-term trajectory of falling interest rates”, declared the president of the Central Bank. According to him, the institution manages to control only short-term inflation, based on the setting of the Selic rate. He explained, however, that the interest rates with which companies finance themselves are based on the futures market-which fluctuate according to the confidence of agents in the Brazilian economy. In this case, he said, the results of the public accounts are important. “Unfortunately, the BC does not control interest rates the way people think. We control one-day interest rates, above that is the rate that people are willing to lend to the government. If there is a perception of more risk, they charge more. The important thing is to carry out a credible process of lowering interest rates, as businessmen are not financed at the Selic”, said Campos Neto.

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