Inflation expectations in Brazil rise for the 20th week in a row
Financial market agents in Brazil raised their inflation expectations for the 20th week in a row, tilting the consumer price index IPCA to see the year up 7.11%, according to Focus’s weekly report. the Central Bank.
What the Central Bank initially explained as a temporary inflationary shock has now lasted for over a year. Food prices first rose before fuel prices became the new bad guy, soon joined by electricity bills. Due to a widespread spike in the cost of living, some Brazilian households are resorting to wood-burning stoves, and beef consumption has fallen to its lowest level in 25 years.
Last week, Central Bank CEO Roberto Campos Neto pledged to do “whatever it takes” to keep inflation within its target range, which peaks at 5.25% for this year.
Despite the comments, financial institutions kept their outlook for interest rates unchanged from the week before, setting the benchmark Selic rate at 7.5% by year end. That would be an increase of 225 basis points from the current 5.25% per year.
In recent weeks, interest rate curves have been influenced by the latest political crisis in Jair Bolsonaro’s government, which could lead to a serious imbalance in Brazilian public accounts. The most pressing issue is the potential default on government IOUs, known as the precatórios. Without approving a measure to renegotiate these debts, the administration would not be able to revive the cash transfer programs, seen as the key to President Bolsonaro’s chances of re-election in 2022.
The Brazilian currency has also taken the brunt of the seemingly endless political crisis, losing 3% of its value since early August. However, financial institutions estimate that the exchange rate will end the year at 5.10 BRL: 1 to 5% higher than current levels.