For markets, Brazil is unlikely to meet inflation goals next year

In the latest edition of its Focus Report, a weekly survey among market agents, the Brazilian Central Bank brings sour inflation expectations for next year. The median forecast by top-rated investment firms now sits at 5.23 percent — up from 5.17 percent last week and 5.02 percent a month ago. 

The government set its target for 2023 at 3.25 percent — with a tolerance band ranging from 1.75 to 4.75 percent.

Yearly inflation in Brazil continues to cool down after staying above the 10-percent mark for nearly a year between September 2021 and July 2022. At 5.9 percent, the benchmark IPCA index is now at its lowest level since February 2021, when food and fuel costs began climbing fast. They have lost steam in recent months, despite an uptick in November, according to Brazil’s official statistics agency.

Part of the slowdown in food prices has been noticed since the second half of 2022, with commodity prices easing. For next year, the prospect of a good harvest and low economic growth should leave little room for major hikes.

For 2023, economists believe inflation will be pressured by so-called “regulated prices.”

The term refers to prices that are less sensitive to supply and demand conditions because they are established by contract or set by a government entity. As these contracts often contain adjustments according to past inflation, it can be said that this partial indexation makes these prices effectively “dependent on the past” and less sensitive to economic cycles. 

The...