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By Lise Alves, Senior Contributing Reporter

SÃO PAULO, BRAZIL – The Central Bank (CB) of Brazil forecasts that this year’s inflation will reach 6.5 percent, within the upper limit of the government’s established target (center at 4.5 percent). According to the Bank’s last Quarterly Inflation Report for 2016, the forecast is 0.1 percentage point below that reported in September (6.6 percent).

Brazil, Brasilia,Central Bank report shows inflation within target limits for 2016,
Central Bank report shows inflation within target limits for 2016, photo courtesy of Banco Central do Brasil.

The report was released on Thursday, December 22nd, and is in line with market expectations. “The evolution of prices indicates an ongoing disinflationary process,” stated the report.

Adding, “Recent inflation figures came in more favorably than expected, partly due to the reversal of food price increases, but also with signs of more widespread disinflation.”

The report also forecasts that inflation will continue to decline in 2017, closing next year at 4.4 percent, below the center of the target (4.5 percent) and significantly lower than the upper limit established for next year, of six percent.

In 2018, the inflation expectation is still lower, of 3.6 percent. Market expectations forecast slightly higher inflation rates for the next two years, at 4.7 percent (2017) and 4.5 percent (2018).

The report also shows a deterioration of the Central Bank’s GDP growth forecast in 2016 from -3.3 percent in the September inflation report to -3.4 percent in this latest document with agricultural production declining steeply by 5.9 percent, industry retracting by 3.5 percent and trade and services falling by 2.7 percent.

For 2017, although the forecast of the GDP growth is expected to remain in positive territory, the amount of growth was revised down, from 1.3 percent to 0.8 percent.

For the calculations of the report government officials considered the foreign exchange rate at R$3.40/US$1 and the benchmark interest rate (Selic), at the current level of 13.75 percent.

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