Brazil Central Bank head: Tax cuts can’t fix inflation

The president of Brazil’s Central Bank (BC), Roberto Campos Neto, said today (22), tax reduction would not help lowering inflation “structurally.” The topic was raised following a statement by the country’s Economy Minister Paulo Guedes, saying that the government is considering slashing up to 25 percent of the rate for the Tax on Industrialized Products—known in its original Portuguese acronym as IPI, a federal levy on industrialized goods, domestic or imported, sold in the country. Guedes spoke at the same event in São Paulo, a morning seminar held by bank BTG Pactual.

“By lowering taxes or finding other means to give up revenue and reduce product prices at a given moment, you’re not tackling inflation structurally. You may see a drop in the short run, but in terms of inflation expectations, this will be incorporated, and tends to prevail structurally, in the medium and long term,” he said when asked about the issue, adding that this evaluation takes into account not only Brazil, but other countries that have adopted similar measures, such as Colombia.

Also on inflation, the leader of the financial authority projected a faster plunge in the first half of the year. “When we look at 12 months, from April to May, this is our vision,” he said. Campos Neto denied he said these would be the peak months. According to statistics agency IBGE, for the last 12 months, the National Broad Consumer Price Index, or IPCA, is up 10.38 percent, higher than the 10.06 percent recorded in the preceding period.

Campos Neto said the Central Bank has kept an eye open for inflation in services. “It increased faster and was more widespread. Industry saw no decline; it actually spread even further,” he said. Part of this dynamic stems from the energy chain, he went on to argue.

Regarding services, the head of the Central Bank said he seeks to understand what may have led to price hikes. “We tried to see what was margin rebuilding and what was salary. We’re looking at services more closely. We already expected it to rise. The latest figure surprised us negatively,” he noted.

Cryptocurrencies

The president of the Brazilian Central Bank also discussed the Senate approval of a bill on the country’s cryptocurrency market. Today, the Senate’s Committee on Economic Affairs approved the proposal that recognizes and regulates the market in the country. The text should be submitted to the lower house soon.

“There’s another bill at the lower house, but we understand there might be a way to attach both together. It’s important. It’s the first bill, which concerns brokers,” he said, considering the approval advantageous. The topic dominated the best part of a recent meeting with central banks in several countries, he noted. “I see a certain concern, but I also see new doors opening for financial innovation, for a decentralized system that’s capable of generating inclusion, so we need to put everything in perspective.”