Double-digit inflation not seen since 2002
The Central Bank expects that the Broad National Consumer Price Index (IPCA), the official inflation gauge, will close out 2015 at 10.8%.
Consumers have struggled with sharp price increases in 2015, particularly in regulated prices—such as electricity, gasoline, gas, and public transport—and food. The hikes are certain to result in double-digit inflation by the end of the year, a situation that has not been seen since 2002 (12.53%). The Central Bank expects that the Broad National Consumer Price Index (IPCA), the official inflation gauge, will close out 2015 at 10.8%.
In addition to the higher regulated and food prices, the service industry and the dollar hike have also created inflationary pressures in 2015.
Miguel de Oliveira, chairman of the National Association of Executives in Finance (ANEFAC), noted that the high inflation is set in a broader context of economic downturn and shrinking employment. “It's a combination of conditions—high inflation, high interest rates, growing unemployment and delinquency rates. This makes it a very unfavorable context for consumers,” he said. The outlook for 2016 is one of lower, but still high, inflation. According to Oliveira, next year should close with 6.9% inflation. The Central Bank's outlook is 6.2%.
“It can be worse because even though the economic downturn is holding back prices, there's a currency issue,” he said. He went on to explain that if the dollar continues to rise next year, imports and foreign-input products manufactured in Brazil will appreciate as well.
In 2015, the upward path of regulated prices, a process that had been contained by the government before, was sharper and lasted longer than expected by the Central Bank. The food hike, in turn, reflected the dollar hike and the adverse weather conditions.
Interest
In an attempt to prevent inflation from going up indefinitely, the Monetary Policy Committee of the Central Bank (COPOM) raised the benchmark interest rate (SELIC) for seven consecutive times. At its meetings in September, October, and November, the committee decided to keep the SELIC rate at 14.25% per annum. SELIC increases are designed to contain excess demand that pushes prices up, by making credit more expensive.
About the challenges controlling inflation, according to a report by the National Confederation of Industry (CNI), the Central Bank's measures have been made less effective by the deterioration in government finance. “The fiscal deterioration and the difficulty adjusting them to better accommodate a more sustainable path for the government debt have put off economic actors and caused the real to depreciate.”
Another shortcoming for the Central Bank's efforts, according to the CNI, is the growing share of earmarked credit in total bank loans (49% in October 2015 as against 36% in early 2007). With lower interest than the SELIC rate and well below the rates for non-earmarked credit, earmarked credit requires larger SELIC increases to lower the amount of credit required to contain inflation.
“Thus, in order to ensure a more effective monetary policy, it is critical to balance the government finance to allow inflation to trend towards the target as steeply as possible and at the lowest cost possible to economic activity,” the report went on.
2016 Target
The National Monetary Council (CMN) set the inflation target at 4.5% for 2015, 2016 and 2017, plus or minus 2 percentage points for 2015 and 2016, and plus or minus 1.5 percentage points in 2017.
Translated by Mayra Borges
Fonte: Double-digit inflation not seen since 2002
