Brazil Increases Inflation Forecast for 2016 to 7.3 Percent

By Lise Alves, Senior Contributing Reporter

SÃO PAULO, BRAZIL – Brazil’s Central Bank increased its forecast of annual inflation for this year, from a 6.9 percent forecast in June to 7.3 percent. The increase in inflation forecast is in the Quarterly Inflation Report, released on Tuesday (September 27th) in Brasilia.

This latest forecast, however, calls for a smaller inflation rate next year, from the June forecast of 4.7 percent to an estimate of 4.4 percent. If the current forecast is seen the country will have met the center of the inflation target established for 2017, of 4.5 percent.

For 2018, the Central Bank forecasts an annual inflation rate of 3.8 percent.

“There is a process of ‘disinflation’ in progress,” the report says. “The forecasts produced by the Copom (Monetary Policy Committee) indicate that this process should continue in the coming years,” adds the report.

The financial institution’s quarterly report also forecasts a decline in the country’s GDP to 3.3 percent this year, with agricultural production declining by 2.2 percent, industry retracting by 3.3 percent and trade and services falling by 2.7 percent. The GDP for 2017, however, is expected to move to positive territory with a growth forecast of 1.3 percent next year.

For the calculations of the report government officials considered the foreign exchange rate at R$3.30/US$1 and the benchmark interest rate, (Selic), at the current level of 14.25 percent.

This year’s inflation forecast in the Quarterly Inflation Report is in line with market expectations registered in the weekly Focus Survey conducted by the Central Bank with one hundred financial institutions. According to market forecasts, inflation in 2016 should be of 7.3 percent. Market estimates, however, are higher for inflation in the upcoming years, with 2017 estimates reaching 4.9 percent and 2018 totaling 4.6 percent, both above the inflation target set by the Central Bank.