Brazil’s Inflation Forecast Drops for the 11th Consecutive Week, to 3.26 Percent

RIO DE JANEIRO, BRAZIL – According to a Central Bank (BC) survey of the financial market released every Monday on the Internet, the forecast for inflation, calculated by the National Broad Consumer Price Index, this time dropped from 3.28 to 3.26 percent in 2019.

As for 2020, the estimate declined from 3.73 to 3.66 percent, in its fourth consecutive reduction. The forecast for the following years remained unchanged: 3.75 percent in 2021 and 3.50 percent in 2022.

The projections for 2019 and 2020 are below the center of the inflation target to be pursued by the Central Bank.

The inflation target, defined by the National Monetary Council, is 4.25 percent in 2019, 4 percent in 2020, 3.75 percent in 2021 and 3.50 percent in 2022, with a tolerance interval of 1.5 percentage points up or down.

The main tool used by the Central Bank to control inflation is the basic interest rate, the SELIC. When the Central Bank’s Monetary Policy Committee (COPOM) reduces the SELIC rate, the trend is for credit to become cheaper, with incentives for production and consumption, reducing inflation control and boosting economic activity.

When the COPOM increases the SELIC, the goal is to contain the heated demand and this is reflected in prices as higher interest rates increase the cost of credit and encourage savings.

With inflation expected to drop, the financial market reduced the forecast for the SELIC in late 2019. For the financial market, the SELIC is expected to end 2019 at 4.50 percent a year. Last week’s forecast was 4.75 percent a year. Currently, the SELIC is at 5.50 percent a year.

The financial market has not changed its forecast for the end of 2020: 4.75 percent per year.

As for 2021, the SELIC is expected to end the period at 6.50 percent per year, which is the same forecast as two weeks ago. For the end of 2022, the forecast remains at 7 percent per year.

Economic growth

The forecast for Gross Domestic Product (GDP) growth – the sum of all goods and services produced in the country – was adjusted from 0.87 to 0.88 percent in 2019.

Estimates for the following years have remained unchanged: two percent in 2020; and 2.50 percent in 2021 and 2022.

Dollar

The forecast for the dollar exchange rate at year-end 2019 is R$4.00; for 2020, it has increased from R$3.95 to R$4.00

Source: Agência Brasil