By Kristen Nozell, Contributing Reporter

RIO DE JANEIRO, BRAZIL – For the first time since September 2010, Brazil’s Central Bank has lowered its inflation forecast for the year. As revealed in the third quarter report released Monday, September 30th by the country’s monetary authority, the Índice de Preços ao Consumidor Amplo (IPCA, or Consumer Price Index) inflation is now forecast to close this year at 5.8 percent.

Brazil's Inflation Forecast Lowered, Rio de Janeiro, Brazil News
Brazil’s Central Bank headquarters in Brasília, photo by Banco Central do Brasil.

The new forecast represents a decline from last quarter’s prediction of six percent, but the figure is still significantly higher than the government’s target inflation rate of 4.5 percent. The IPCA is Brazil’s key inflation measure.

While this year’s inflation prediction was lowered from last quarter’s estimates, the figures, which are calculated using a baseline scenario with consistent exchange rates, reveal a higher-than-anticipated IPCA for 2014, from 5.4 percent to 5.7 percent, and a consistent 2015 estimate of 5.5 percent.

These numbers take into account a scenario with a steady exchange rate of R$2.35 to US$1 and a SELIC – Brazil’s benchmark interest rate – of nine percent.

The decrease predicted to close out the year is attributed to the recent depreciation of the real and the gradually waning impact of high inflation rates in the second half of 2012. The IPCA rose by .24 percent in August after inflation recorded a growth of only .03 percent in July, the lowest recorded in the past three years.

In the Executive Summary of the report, available through the Central Bank’s website, the financial authority stresses that “as high inflation rates reduce the growth potential of the economy, as well as of jobs and income generation…the monetary policy should remain especially vigilant.”

The Central Bank is consequently in the process of tightening monetary conditions to combat rising consumer prices, likely raising the SELIC again in October, which would be the fifth increase this year.

The same report also showed a modest decline in the GDP growth forecast for the year 2013, down from July’s prediction of 2.7 percent to 2.5 percent. Brazil’s IPCA reached 5.84 percent at the end of 2012, more than one percentage point above the government’s target of 4.5 percent.

Read more (in Portuguese).

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