By Rodrigo Viga Gaier
RIO DE JANEIRO (Reuters) – The Institute for Applied Economic Research (Ipea) this Wednesday raised its projections for inflation in Brazil in 2021 and 2022, given the strong pressure on prices in the country and in the world, with an estimate for this year close to 10%.
According to the institute, the IPCA should end 2021 with an accumulated increase of 9.8%, against a rate of 8.3% forecast in September. The result is well above the official target ceiling for this year, of 3.75% with a tolerance margin of 1.5 percentage points more or less.
For 2022, although a deceleration in relation to this year’s inflation rate is expected, Ipea’s projection for high prices rose to 4.9%, from 4.1% before, outside the center of the target, which in this case is of 3.5%, with a margin also of 1.5 point.
“The expected decline in inflation in 2022 is based on the estimated accommodation of oil prices, albeit at a high level, to the low probability of intense weather effects and the projection of a 7.8% increase in the Brazilian crop, which should generate less pressure on fuels, electricity and food”, explained Ipea in a statement released this Wednesday.
The institute also highlighted that, despite the positive effects on domestic demand of the stronger recovery of the labor market and the implementation of the Brazil Aid, changes in the prices of goods and services in the next year should be mitigated by the signs of continuity in the trajectory of high interest rates.
Faced with persistently strong inflation indicators, the Central Bank has promoted an intense monetary tightening cycle, which is seen as an impediment to economic growth, as higher interest rates tend to cool down spending.
The Selic rate is currently at 7.75% per annum, and the market expects it to be raised to 9.25% at the last monetary policy meeting of the year, on December 7th and 8th, according to the weekly survey BC Focus.
On the external side, Ipea said that inflationary risks are still associated with the possibility of further accelerations in commodity prices.
Internally, the perception of some fiscal weakness is already weighing, in addition to political instability in the face of the electoral process, “the effects of which could trigger a new cycle of exchange rate devaluation,” added Ipea.
In its fourth quarter outlook letter, Ipea noted that higher inflation is a global phenomenon amidst a pandemic scenario, but stressed that domestic issues such as the water crisis and rising energy costs help boost prices in Brazil .
Data for October recently showed that the IPCA soared 10.67% in the accumulated in 12 months, the most accentuated rate since January 2016 (+10.71%).
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