For the second consecutive year, inflation shall burst the target ceiling, according to the Inflation Report for the second quarter, released on Thursday (Jun. 30) by Brazil´s Central Bank.

The probability that the country´s Broad National Consumer Price Index (IPCA) – which serves to set Brazil’s official inflation – will exceed the target ceiling in 2022 rose from 88 percent in March to 100 percent in June. By 2023, the chance of the IPCA exceeding the target ceiling rose from 12 percent to 25 percent, the Central Bank´s report warns.

Explanatory letter

When the IPCA exceeds the target ceiling or falls below the benchmark, the Central Bank must write a public letter, explaining the reasons. The bank did so at the beginning of the year after the 2021 IPCA had reached 10.06 percent, the highest level since 2015, and well above the 5.25 percent ceiling for last year.

On that occasion, Central Bank´s president Roberto Campos Neto explained the burst of the target ceiling due to the lack of inputs resulting from the COVID-19 pandemic, the rise in commodities prices (primary goods based on international prices), and the water crisis that raised electricity tariff in 2021.

The main way for the Central Bank to control inflation is through the benchmark interest rate Selic, established every 45 days by the Monetary Policy Committee (Copom). According to the minutes of the last Copom meeting, which set the Selic rate at 13.25 percent per year, the body is aiming to meet the target in 2023, and interest rates may remain high for longer than expected.

Other projections

The Central Bank projects that the Gross Domestic Product (GDP, the sum of the wealth produced in the country) shall grow 1.7 percent in 2022, against a previous forecast of 1 percent in the March report. The trade balance surplus projection rose from US$ 83 billion to US$ 86 billion. The volume of bank credit shall grow 11.9 percent, against a previous forecast of 8.9 percent, and the estimated surplus of external accounts dropped from US$ 5 billion to US$ 4 billion, the document released on June 23 by the Central Bank reads.

Source: Agência Brasil