The president of the Central Bank, Roberto Campos Neto, said this Tuesday (24) that the institution has “sufficient instruments” to make inflation fall in the “relevant horizon”.
“The Central Bank has the instruments that we believe are sufficient for inflation to converge on the target in the relevant horizon,” he said, during an online event promoted by an investment broker.
Campos Neto did not detail, at the event, the deadline for this “relevant horizon” nor did he list what the “sufficient instruments” would be. Traditionally, the main instrument of the Central Bank to fight inflation is the basic interest rate (Selic rate).
For 2021, the central inflation target is 3.75%, the ceiling, 5.25% after 12 months. The rise in prices in the country, however, will exceed these percentages according to market and Central Bank projections.
From January to July – that is, five months before the calculation –, the Broad National Consumer Price Index (IPCA), considered the official inflation of the country, has already accumulated an increase of 4.76%.
In 2022, the central inflation target is 3.50% and will be officially met if the index fluctuates from 2% to 5%. The financial market is projecting an inflation of 3.93% next year, according to the latest Focus bulletin.
At the event, Campos Neto also stated that the market expectation for 2022 inflation is “uncoupled” from the forecasts made by the monetary authority.
On Monday (23), Economy Minister Paulo Guedes denied that the 2021 inflation is out of control and said that a rate between 7% and 8% is “in the game”. The accumulated of the last 12 months by the IPCA is 8.99%.
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During the virtual event, Campos Neto evaluated that, last year, there was an increase in the consumption of goods and a reduction in the consumption of services, due to social isolation.
At the moment, the BC president sees an increase in consumption (and consequently in prices) of services, with a resistance in the price of goods that rose during the pandemic.
This movement would be happening in much of the world, in Campos Neto’s view. He rejects the thesis that inflation is being caused by the lack of supply of inputs such as metals and semiconductors. For the BC president, inflation is caused by increased consumption.
“We are looking a lot at the inflation of services,” stated Campos Neto. He added that the water crisis and the rise in monitored prices, which are services and products with adjustments defined by contracts or regulated by the public sector, are also a factor of pressure in Brazil.
“We saw successive shocks, which caused an increase in inflation in 2021 and deterioration in expectations,” said Campo Neto.
During the event, Campos Neto asked market agents to look beyond the “noise”.
“What I tried to do with the last lines is that market agents look beyond the noise, look at the background [situação fiscal]”, he said.
The BC president acknowledged that the “noise” was caused by the reform of the Income Tax and the PEC dos Precatórios, which were interpreted by the market as tools for the government to spend more on a social program in 2022. But he said that there was an improvement in the fiscal situation, even with the pandemic.
“It began to convey the perception to the market that the tax reform, [a PEC] of the court orders were being made possible in order to have a higher Bolsa Família, this generated this noise”, explained the president of the Central Bank.
“I understand the market’s sensitivity to this issue, but when we look at the enlarged figure, we see that we have had some improvement [fiscal]. The numbers are better than the perspective and what the market has taken for granted,” he added.
He cited as an example the projections for the government’s gross debt and primary result in 2022, which would already be at the levels projected by the market and by the Central Bank before the pandemic.