Brazil’s government sees inflation within target band, unlike markets
10:13 am Monday, November 18th, 2024
By Marcela Ayres
BRASILIA (Reuters) -Brazil’s finance ministry raised its inflation forecasts for this year but expects inflation to remain within the official target band, in contrast to a more negative view held by markets.
The ministry’s economic policy secretariat raised its inflation projection to 4.4% for this year, from 4.25% projected in September, approaching the upper limit of the target, which aims for 3% with a 1.5 percentage point margin on either side.
“Items with more volatile prices, more affected by exchange rate and weather dynamics, explain the increase in the inflation forecast for 2024,” it said.
Meanwhile, private economists surveyed weekly by the central bank expect consumer prices to rise 4.64% this year.
Speaking at a press conference, economic policy secretary Guilherme Mello said the difference was “very small” and due to the government’s expectation of a lower electricity tariff in December.
His secretariat also raised its inflation forecast for next year to 3.6%, up from 3.4%, partly as a result of recent currency depreciation.
The Brazilian real has weakened about 16% against the U.S. dollar year-to-date amid fiscal uncertainties in the country and a global volatile environment, exacerbated by U.S. President-elect Donald Trump’s tax and tariff policies which economists say may be inflationary.
On Monday, lender Itau sharply revised its inflation forecast, raising it to 4.8% for this year and 5.0% for next year, on the back of a weaker currency affecting industrial goods, rising pressure on services prices, and an announced fuel tax hike by states to take effect in February.
In this scenario, Itau now expects interest rates to peak at 13.5%, up from the previous forecast of 12%, and remain at that level through the end of next year. The benchmark interest rate Selic currently stands at 11.25%.
For GDP, the finance ministry slightly upgraded its economic growth forecast for this year to 3.3%, from 3.2% before, while maintaining the 2.5% growth estimate for next year.
(Reporting by Marcela Ayres; Editing by Toby Chopra and Christina Fincher)
