IMF less pessimistic than domestic financial market about Brazil inflation

RIO DE JANEIRO, BRAZIL – The Fund now estimates a 7.9% increase in the IPCA (Extended National Consumer Price Index) for this year, against 4.5% in its last inflation projection in April. Simultaneously, it increased its projection for 2022 to 4.0%, from the previous 3.5%.

The projection for this year significantly exceeds the official inflation target ceiling, while for 2022 it remains within the tolerance margin – the Central Bank’s inflation target for 2021 is 3.75% and for 2022 it is 3.50%, with a margin of 1.5 percentage points up or down.

Despite the adjustment, the IMF’s scenario for inflation this year is still much lower than the 8.59% rate forecast by the domestic financial market in the Central Bank’s latest Focus report. For 2022, the result expected by the Fund is also lower, given that Focus analysts estimate an increase in the IPCA of 4.17%.

For its part the Central Bank estimates inflation at 8.5% by the end of 2021 and 3.7% in 2022, while the government forecasts IPCA hikes of 7.9% in 2021 and 3.75% in 2022.

“Looking ahead, inflation (in the world) is expected to peak in the last months of 2021, and should return to pre-pandemic levels by mid-2022 for both advanced economies and emerging market countries, and with upward-facing risks,” the IMF said in its Global Economic Outlook report, highlighting the need for clear communication coupled with appropriate fiscal and monetary policies for specific country contexts.

With an eye on inflationary pressures in Brazil, the Central Bank raised the benchmark SELIC interest rate to 6.25% per year in September, and signaled that it will head into “contractionary territory” as it continues its aggressive monetary tightening cycle to tame inflation that has proven more persistent and widespread.

GDP

The IMF’s projections for the Brazilian economy have also worsened. The growth of the Gross Domestic Product (GDP) was now projected at 5.2% this year and 1.5% in 2022, reductions of 0.1 and 0.4 percentage points respectively on the July forecast, the latest for GDP.

For the Central Bank, the Brazilian economy should grow 4.7% this year and 2.1% next year, compared to government estimates of 5.3% this year and 2.5% the next.

The IMF scenario for Brazil is well below that forecast for Emerging Markets and Developing Economies, which includes Brazil – the group is expected to grow 6.4% this year and 5.1% the next. It is also much lower than the outlook for Latin America and the Caribbean, of 6.3% and 3.0% growth, respectively.

The IMF also estimated that the Brazilian unemployment rate will stand at 13.8% this year and 13.1% in 2022, representing an improvement over the rates forecast in April of 14.5% and 13.2%.