Inflation around the world

According to financial market estimates on the Extended National Consumer Price Índice (IPCA), taking into account the country’s official inflation, it rose from 5.82% to 5.88% this year. The assessment appears in today’s Focus Bulletin (21), a weekly survey by the Médio Bank (BC) on the expectations of financial institutions regarding the main economic indicators.

What is expected for next year, according to the projection, is an inflation of 5.1%. In 2024 and 2025, respectively, these numbers reach 3.5% and 3%. According to the 2022 forecast, inflation is above the ceiling of the expected target, respectively pursued by the Médio Bank.

The target is 3.5% this year, according to the National Monetary Council, with a tolerance lapse of 1.5 p.p. above or below. Therefore, the lower limit is 2%, and the upper limit is 5%.

In the same way, what can be observed from the market for the 2023 inflation is a projection that exceeds the forecast conditions. Respectively, 2023 and 2024 will be at 3.25% and 3%, maintaining the same tolerance intervals of 1.5 p.p. Estimating that the limit for 2023 is 1.75% and 4.75%.

Inflation has risen sharply

In the 10th month, inflation increased by 0.59%, after three months of decline. Consequently, the IPCA has accumulated an increase of 4.7% in the year and 6.47% in 12 months. Declares the IBGE.

To achieve the result of the inflation target, the Médio Bank uses as its main tool the basic interest rate, the Selic, which by the Monetary Policy Committee (Copom) is set at 13.75%, continuing at its highest level since January 2017, when it was also equal to this result.

What the financial market expects is that the Selic ends the year with the same percentage of 13.75%. By the end of 2023, it is estimated that the base rate will decline by 11.5% per year.

Inflation

Expecting the forecast Selic rate to be at 8% per year, for 2024 and 2025. The Copom’s objective in increasing the basic interest rate is to contain accelerated consumption, which is reflected in prices, because with higher interest rates, the consumer is encouraged to save and control spending. Noting that higher rates may hinder economic expansion.

Other banks, in addition to Selic, consider other phenomena when defining the interest charged to consumers, such as insolvency risks, profits and administrative expenses. When there is a decrease in the Selic by the Copom, what is expected is that credit becomes cheaper, encouraging production and consumption, reducing control over inflation and stimulating economic activity.

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