Inflation outlook continues to deteriorate in Brazil

The median forecast for year-end inflation in Brazil was unchanged at 5.9 percent in this week’s Focus Report, the Central Bank’s weekly survey with top-rated market agents. The median forecast had risen consistently in each of the previous 11 weeks. 

But while the median forecast remained unaltered, more analysts are betting on higher inflation, according to Central Bank data. A week ago, 55.9 percent of analysts predicted that the IPCA consumer price index — Brazil’s benchmark inflation gauge — would end the year in the range of 5.54 to 6.26 percent. Now, over 70 percent did so.

Markets do not believe inflation will stay within the target range (the official target is 3.25 percent for the year, with a tolerance band of 1.75 to 4.75 percent). If they are right, it will be the third year in a row that inflation has exceeded the upper limit of the tolerance band — and the fifth year that consumer prices have risen above the target.

Economists eagerly await the release of Brazil’s February consumer price figures, due Friday morning. Inflation has been slowing in recent months, but remains stubbornly high (5.77 percent over 12 months) and widespread. The recent end to fuel tax breaks has affected prices at the pump and may make inflation harder to tame.

Meanwhile, Brazil’s latest GDP reading showed that the Central Bank’s monetary tightening has begun to cool the economy, but some worry the results may be an overcorrection — with recession risks not negligible.

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