Financial market raises inflation estimate to 4.21%, above the target center | economy

The expectations are part of the market bulletin known as the “Focus” report, published on Monday (7) by the Central Bank (BC). The data was collected last week in a survey of more than 100 financial institutions.

For the Broad Consumer Price Index (IPCA), the country’s official inflation, the market’s expectation for this year increased from 3.54% to 4.21%.

With the increase, the market’s inflation expectation for this year began to be, for the first time, above the central inflation target of 4%, but it is still within the existing tolerance range.

Under the current rule, the HICP can range between 2.5% and 5.5% this year without the target being formally breached. When the objective is not met, the CB has to write a public letter explaining the reasons.

The inflation target is set by the National Monetary Council (CMN). To achieve this, the Central Bank raises or lowers the basic interest rate of the economy (Selic).

Throughout the year, with the new coronavirus pandemic and the recession in the Brazilian economy, the market lowered its estimate of inflation. In recent months, however, with the rise in the dollar and the resumption of the economy, prices have risen again.

In September, the country’s official inflation rose 0.64%, the highest increase of the month since 2003. In October, it rose to 0.86%, the highest since 2002.

For 2021, the financial market lowered its inflation forecast from 3.47% to 3.34%. Next year, the central inflation target is 3.75% and it will be officially met if the index fluctuates from 2.25% to 5.25%.

On the behavior of the Brazilian economy in 2020, financial market economists they cut their drop in the estimate of the Gross Domestic Product (GDP) from 4.50% to 4.40% last week. It was the fifth consecutive improvement in the indicator.

GDP is the sum of all goods and services produced in the country and is used to measure the evolution of the economy.

In the last week, the market rose from 3.45% to 3.50% the estimate of GDP expansion for 2021.

The expectation for the level of activity was made in the midst of the new coronavirus pandemic, which has collapsed the world economy and put the world on the path of a recession. In recent months, however, indicators have shown a recovery in the Brazilian economy.

• In November, the Brazilian government lowered its forecast for a GDP contraction in 2020 from 4.7% to 4.5%.
• The World Bank predicts a 5.4% drop in Brazilian GDP and the International Monetary Fund (IMF) estimates a 5.8% drop in 2020.
• In 2019, according to data from the Brazilian Institute of Geography and Statistics (IBGE), GDP grew 1.1%. It was the weakest performance in three years.
• After declining in the first two quarters of this year, GDP increased 7.7% between July and September, compared to the previous three months. The result confirmed the country’s exit from the so-called “technical recession”, but it has not yet recovered the losses recorded during the pandemic.

After maintaining the basic interest rate at 2% per annum at the end of October, the market continues to anticipate stability in the Selic rate at this level until the end of this year.

By the end of 2021, market expectations were unchanged at 3% annually. This means that analysts continue to estimate high interest rates in 2021.