Markets see booming inflation having spillover effects in 2022

Markets see booming inflation having spillover effects in 2022
Fuel prices have skyrocketed in Brazil. Photo: Marcello Casal Jr/ABr

Financial institutions raised their estimates for year-end consumer prices in 2021 and 2022, according to the latest edition of the Central Bank’s Focus Report. Economists now believe the 12-month inflation rate will finish the year at 8.35 percent (up from 8 percent last week) — and reach 4.1 percent in 2022 (from 4.03 percent).

The adjustment in projections comes after Central Bank Chairman Roberto Campos Neto signaled the monetary authority will stick to the plan and raise the Selic benchmark interest rate by 1 point on Wednesday. Last week, his remarks pushed Brazilian bond yields down, as markets were expecting stronger action to curb rising inflation. 

If both estimates are confirmed, consumer prices would breach the Central Bank inflation target for 2021. Indeed, inflation is already above the 3.5 percent target for 2022, something Mr. Campos Neto said he would fight to avoid.

Booming inflation may also have negative effects on the economy’s growth. While GDP growth estimates for 2021 remained stable at 5.04 percent, markets cut 2022 projections to 1.63 percent; four weeks ago, they expected a 2-percent bump.