Central Bank: Inflation down at slower pace than expected
The decline in inflation has been slower than expected, said Roberto Campos Neto, president of Brazil’s Central Bank. Headline inflation is on the wane, he noted, but core inflation (more volatile prices excluded) is falling at a slower pace.
“Disinflation in the country has been slower than expected. The consensus among central banks is that the work is not done yet. We need to be persistent,” Campos Neto stated at a meeting of the European Economics & Financial Centre, in London, on Wednesday (Apr. 19).
Expectations
The Central Bank, Neto remarked, is more concerned with prospects. The bank forecasts the IPCA—the nation’s official gauge for inflation—at 5.8 percent for 2023, 3.6 percent for 2024, and 3.2 percent for 2025. Despite the reduction, he added, expectations point above the center of the target.
It is the task of the National Monetary Council to set the inflation targets to be met by the Central Bank. They were fixed at 3.25 percent for 2023 and three percent for 2024 and 2025. For all of them, the tolerance interval is 1.5 percentage points higher or lower.
According to President Neto, the surge in long-term predictions is partly due to noise stemming from the change in government.
“There has been some questioning as to why we have inflation expectations in the medium and long term going up if short-term inflationary surprises are positive. I think the issue here is that some noise came along with the change of government. When we look at why inflation has de-anchored in the long run, part of the explanation is the fiscal package that was passed and the government talking about changing the targets,” he argued.
Fiscal framework
The president of the financial institution also commented on the complementary bill on the new fiscal framework, submitted to Congress this Tuesday (Apr. 18), aimed at replacing the spending cap from previous administrations.
“We had the new fiscal framework; the text was turned in yesterday; I haven’t had time to look at all the details, but it appears to be in line with what I had seen before,” he said. He went on to say, however, that he does not see a “mechanical relationship” between the approval of the new fiscal anchor and a possible drop in interest rates.
He also discussed a possible change in targets, adding the institution is opposing the idea as it would not result in an immediate cut in interest, and because such a measure would raise Brazil’s risk premium.
Neto added that a possible elevation of targets would give the market the idea that the government plans to gain flexibility in monetary policy, but admitted that some of the bank’s board members think otherwise.
