Reduction process can be linear or with “moments of slower convergence”; services inflation in Brazil is 6.2%
The president of B.C. (Central Bank), Roberto Campos Neto, said that it is still necessary to understand the disinflation process in the services sector. He participated in an event promoted by the Parliamentary Front for Green Economy, in Brasília.
Campos Neto argued that there is a global process of falling inflation in services, but that it is necessary to understand what the last one will be like “mile“, in relation to the end of the disinflation process. He stated that there was a recent worsening in the sector's price trajectory in Brazil, but with temporary factors. “We do not yet have the necessary components to understand that this last mile in services inflation will occur linearly or with moments of slower convergence”said the president of the BC.
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He said that the world went through an inflationary cycle during the covid-19 pandemic and that the process was not linear. He stated that, recently, the CPI (Consumer Price Index) surprised upwards. “It was bigger than expected“, he said.
Despite this, he assesses that there is a trend towards disinflation in the world which also indicates a future reduction in interest rates in the Fed (Federal Reservethe US Central Bank).
Campos Neto said that the inflationary cycle was boosted by food and energy prices, but that, recently, the latter has stopped being a negative contribution.
Campos Neto stated that the biggest current problem is understanding the dynamics of inflation in services, which is slowly decelerating in the world linked to “tight workforce”.
According to the graph presented by the BC, Brazil's services inflation is at 6.2%. “Services are marginally worse, but when you look at the factors there are things more associated with non-recurring items, such as banking services”said Campos Neto.
The IPCA (Broad National Consumer Price Index) recorded an accumulated rate of 4.51% in the 12 months up to January. It is slightly above the inflation target ceiling, which is 3% with a tolerance of 1.5% to 4.5%. To control the level, the monetary authority maintained the basic rate, the Selic, at 13.75% per year for 12 months, from August 2022 to August 2023, when it began to ease monetary policy.
Currently, Selic is at 11.25% per year, with the prospect of falling to 10.75% per year in March.
Campos Neto assesses that most developed countries are in the process of maintaining interest rates, but with an indication that they will fall soon, such as the United States and Canada. Even so, he assesses that the level of interest rates in the world is at a historically high level.
The federal deputy Arnaldo Jardim (Cidadania-SP), president of the Green Economy Front, declared that Campos Neto is a reference in Congress. He defended the autonomy of the Central Bank to control the monetary base. He stated that the BC has a vision “combined” with the country’s development.
The deputy declared that one cannot think about environmental issues without thinking about the economic front. He said that it is necessary to think about instruments for the country's development in the area of sustainability.
REAL INTEREST
Real interest rates – which take into account the country's inflation – are falling and are lower than the average of other monetary tightening cycles, according to the BC president. He mentioned that, in 2014, the rate was 3.6% above the average of similar countries, such as Mexico, Chile and Colombia.
US DEBT
Campos Neto declared that the United States' debt will be a topic of attention due to high growth. He said that the ratio of US debt to GDP (Gross Domestic Product) ranged from 30% to 40% for decades and started to rise from 2002 onwards. “Now, we have a projection of debt growth reaching 180% of GDP”he said.
The BC president declared that, in addition to the debt, interest rates are higher and the cost of paying for payments is much higher. “It’s as if you were stealing liquidity from other markets”, said Campos Neto about US debt financing. High interest rates in the US attract investments in US Treasury bonds.
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