Central Bank explains inflation target burst in 2021

The COVID-19 pandemic, the increase in the global price of commodities (primary goods with international price quotation) and the water crisis were the main reasons that justify the failure to meet the inflation target in 2021, the president of the Central Bank Roberto Campos Neto said. Due to a legal order, he sent this Tuesday (Jan. 11), a letter to the Minister of Economy Paulo Guedes, and to the National Monetary Council (CMN) justifying the official inflation of 10.06 percent in 2021, according to the Extended National Consumer Price Index (IPCA).

The official inflation target for last year was 3.75 percent, with a range of tolerance of 1.5 percentage point. The index, therefore, could vary from 2.25 to 5.25 percent. This was the sixth time, since the creation of the current inflation system, in which the president of the Central Bank had to justify the failure to meet the target.

According to Campos Neto, much of the high inflation in 2021 was a global phenomenon driven by the COVID-19 pandemic. The disease affected trade flows across the planet, creating bottlenecks in the distribution of products. According to him, the phenomenon affected not only emerging countries, but also developed economies.

“Pressures on commodity prices and on global production chains reflect the changes in consumption patterns caused by the pandemic, with a proportionately greater share of demand directed to goods,” Campos Neto wrote. “In fact, the significant acceleration of inflation in 2021 to levels above the targets was a global phenomenon, affecting most developed and emerging countries.”

The last time the president of the Central Bank justified the noncompliance with the inflation target was in 2017. However, inflation ended that year below the target floor, at 2.95 percent, against a minimum limit of 3 percent for the IPCA .