Understand what the continuous inflation target is, which will be adopted by the Central Bank

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Finance Minister Fernando Haddad announced this Thursday (29) that the Central Bank will adopt a continuous inflation target. The decision was taken at a meeting of the National Monetary Council (CMN), in which Haddad participates alongside authorities such as the president of the Central Bank, Campos Neto, and the Minister of Planning, Simone Tebet. The change in the inflation target model was already being defended by the economic team. What changes in practice? Currently, the inflation target works with a closed period: from January to December of a given year. Thus, the objective is that the inflation measured in December, accumulated since the previous January, is within the target. In the case of 2023, the center of this target is 3.25%. In the continuous model it is different. Inflation has to be on target over a time horizon, regardless of the closing date. The target becomes mobile. Haddad stated that the government will work with a 24-month horizon. That is, each month, the accumulated inflation of the previous 23 months has to be within the target. Is the change immediate? The change takes effect from 2025, when a new presidential term at the Central Bank begins.

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