Market improves inflation forecast for 2022 and 2023

Markets have improved Brazil’s inflation prospects for 2022 — for the eighth time in a row — and 2023, after 19 consecutive weeks of increasing projections. Analysts interviewed for the Central Bank’s Focus Report predict that the IPCA consumer price index will end the year at 6.82 percent — versus 7.3 percent one month ago. And for 2023, the projection dropped from 5.38 to 5.33 percent.

The improvements come after the enforcement of government measures aimed at taming inflation, such as cuts to state fuel and energy taxes, in addition to recent reductions in gasoline and diesel prices announced by oil and gas giant Petrobras.

Despite the downward revisions, the numbers are still well above the monetary institution’s inflation target for both years. With a tolerance of 1.5 percentage points, the target will only be met if the index stays between 2 and 5 percent in 2022 and 1.75 and 4.75 percent next year.

If the scenario projected by the market occurs, the Central Bank’s target will be missed for three consecutive years. Last year, year-end inflation was above 10 percent.

Regarding GDP, the market continued to marginally improve its forecasts for this year (from 2 to 2.02 percent) and worsen projections for 2023 (from 0.41 to 0.39 percent). Analysts believe that the measures put in place to contain the bump in consumer prices will improve demand and warm up the economy in the short term. 

Nevertheless, for 2023, not only should this improvement dial down, the rise of the benchmark interest rate Selic — above double digits for both this year and next — should lead to an economic slowdown. 

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