Central Bank raises inflation forecasts for 2021, 2022

The Brazilian Central Bank increased its inflation expectations for the next two years, driven by spikes in commodities prices and the currency devaluation caused by the coronavirus crisis.

The monetary authority now foresees the benchmark consumer price index IPCA reaching 3.4 percent by the end of 2021 and 2022. Though projections hover around the target for each year, they are well above previous forecasts released in September.

The main drivers of this inflation surge are food products, fuels, electricity, and healthcare plans. Inflation should remain well-behaved in Q1 2021, but could peak at 5 percent in Q3.

Despite saying these are temporary effects, the Central Bank ensures it is monitoring developments closely, after 2020’s “surprise” rate of 4.3 percent — 2.2 percentage points above what was expected in September.

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