RIO DE JANEIRO, BRAZIL – The government is leaning toward setting a more ambitious inflation target of 3% for 2024 in an attempt to signal a commitment to anchoring expectations, according to three people familiar with the discussion.
The final decision has not yet been made and some members of the economic team still advocate maintaining the target at 3.25%, the same level established for 2023.
This would be a way to assist the fiscal aspect, as it would avert additional pressure on the spending cap, which establishes that spending growth must be limited to the inflation rate of the previous year, the sources added, requesting anonymity as the discussion is not public.
Still, the prevailing view is that it is necessary to bring inflation to a 3% level similar to other emerging markets. The final decision will be made during the National Monetary Council (CMN) meeting on Thursday, June 24.
Economy Minister Paulo Guedes, Central Bank president Roberto Campos Neto, and the Ministry of Economy’s special secretary of Finance Bruno Funchal are members of the CMN.
Brazil has been slowly reducing its inflation target since 2018. The current target is 3.75% for this year and 3.5% for 2022, with a tolerance range of 1.5 percentage points up or down. However, current high inflation rates (8%) indicate that this year’s target will not be achieved.
A change in the target’s tolerance margin is not under discussion at this time, one of the people said.
During the last COPOM meeting on June 16, the Central Bank raised the SELIC interest rate and has signaled further hikes due to inflationary pressures stemming from the cost of commodities and also from higher electricity bills. Meanwhile, emergency spending amid the pandemic is fueling demand.
Market analysts have no consensus on the 2024 inflation target. Former Central Bank director and head of the investment committee of the Panamby Inno fund Reinaldo Le Grazie advocates a 3% target for 2024, while Tendências Consultoria economist Silvio Campos Neto expects a 3.25% target.