Central Bank forecasts inflation below target this year

Inflation this year in Brazil is expected to stand below the target floor. The estimated National Broad Consumer Price Index (IPCA), Brazil's official inflation, was revised by the country's Central Bank from 3.2% in September to 2.8% last week.

The inflation target center is currently set at 4.5%, with a 3% floor and a 6% ceiling. When the rate goes beyond those limits, the Central Bank must list the reasons why it happened in an open letter to the finance minister (a position occupied by Henrique Meirelles). If, however, the forecast proves accurate, it will be the first scenario with the rate not meeting the target for sinking below the lower target limit.

“Deflation has been wide-ranging, driven significantly by the performance of household eating costs,” Central Bank's report reads.

Over the course of 12 months, inflation for these prices, after reaching a 16.79% high in August 2016, is reported to have “reversed sharply, plunging into deflation.” Between November 2016 to November 2017, the accumulated change in household eating costs went from 11.56% to -5.30%, down nearly 17 percentage points.

Inflation targeting

The inflation targeting regime was introduced in Brazil in 1999. The target is set by the National Monetary Council. It must be observed by the Central Bank, which uses the SELIC, the country's benchmark interest rate, as its main tool for curbing the inflation rate.

The interest rate is to close out 2017 at 7% per annum, and is expected to slip to 6.75% sometime early in 2018 and to take an upward trend in December the same year, reaching 8% in April 2019, and should hold steady until late in 2021.

Translated by Fabrício Ferreira