IPEA forecasts even higher inflation in 2021 and above the ceiling

posted on 8/25/2021 06:00

  (credit: Ronaldo de Oliveira/CB)

(credit: Ronaldo de Oliveira/CB)

The Institute for Applied Economic Research (Ipea) increased the forecast for high inflation this year to 7.1% — above the ceiling of the target established by the National Monetary Council (CMN), of 5.25%. In June, Ipea predicted that the Broad Consumer Price Index (IPCA) would end the year at 5.9%. One of the reasons for the revision is the expectation of more accentuated readjustments for gasoline and electricity, which caused an increase in the projection of monitored prices from 9.5% to 11.0%.

The new forecast puts the IPEA in line with the projections of the financial market, which is betting on a 7.11% rise in the IPCA in 2021, according to the latest Focus report, by the Central Bank. According to the IBGE, the official inflation indicator accumulates an increase of 8.99%. But researcher Maria Andreia Lameiras, from the Conjuncture Group at IPEA, predicts a scenario of inflationary deceleration, especially in 2022.

“This slowdown will come as a result of less pressure from administered prices. We are imagining that both fuel and electricity will not put so much pressure on inflation next year, either because of the maintenance of the international price of oil, or because of the fact that this water crisis will have already been, at least, in large part, cut off with the return of the reservoirs and with the drop in the use of thermoelectric energy”, he explained.

On the other hand, the specialist says that the interest rate tightening cycle, initiated by the Central Bank precisely to hold inflation, will continue in 2022. According to her, next year, if everything goes as expected, inflation will be more driven by free prices, especially services, even with the resumption of economic normality, with the pandemic being controlled by mass vaccination. However, the scenario is not without risks.

“Although, with low probability, we have risks for next year’s inflation, and these risks are associated with a new cycle of high commodity prices. We are assuming that commodities will remain stable or grow at a much slower pace than in 2021, but there is a risk that this stronger upward movement will continue. The second risk that involves next year’s inflation is the exchange rate. A possible exchange rate depreciation will also affect prices, especially for fuel and food,” added Maria Andréia. The projected rates for the IPCA and INPC, in 2022, are 4.1% and 3.9%, respectively.

Similarly to what happens with food, the pressure coming from raw materials in the international market, combined with the increase in the use of installed capacity in the industry and inventories below the desired level, should keep the prices of industrial goods high. The inflation projection for this segment went from 4.8% to 6.6%. The resumption of the service sector, on the other hand, generated an increase in inflation in this segment at a pace higher than initially expected, with the forecast rising from 4.0% to 5.0%.

Pacheco wants extensive renovation

The president of the Senate, Rodrigo Pacheco (DEM-MG), said that the Senate is in favor of a broad and “true” tax reform, which would simplify, adjust and reduce bureaucracy in the system and allow for the resumption of investments. It was a response to a provocation by the president of the Chamber, Arthur Lira (PP-AL), who suggested, earlier, that the responsibility for the economic agenda having stopped in the Legislative branch rested with the Senate, and not with the deputies.

Pacheco once again defended the approval of the Proposed Amendment to the Constitution (PEC) 110, reported by senator Roberto Rocha (PSDB-PA), which unifies federal, state and municipal taxes around the Tax on Operations with Goods and Services (IBS).

*Intern under supervision of Odail Figueiredo

Lira defends spending ceiling and calms the market

After last week’s stress, the financial market had a day of recovery yesterday. Main indicator of the São Paulo Stock Exchange, the Ibovespa closed with an expressive increase, of 2.33%, at 120,211 points, the best result in two weeks. In the foreign exchange market, the return of good mood was reflected in the dollar, which plummeted 2.23%, quoted at R$5.262 for sale, at the end of the session.

According to analysts, without new news about the arm wrestling between the Executive and the Judiciary, investors paid more attention to the reassuring comments of authorities about the fiscal scenario. The greatest positive impact was caused by the defense of the spending ceiling made by the president of the Chamber, Arthur Lira (PP-AL). “I don’t see the need or possibility of blowing the ceiling,” said Lira, at an event with analysts, when commenting on the difficulties of the controversial PEC dos Precatórios, which postpones the payment of judicial debts of the Union.

Coming from an exponent of the centrão, a political group associated with the expansion of public spending, the statement put the market in a bullish mood. In turn, the president of the Central Bank, Roberto Campos Neto, who had been making successive warnings about the risk of disarray in public accounts, stated that fiscal data are better than projected for the moment.

“There is a fiscal backdrop that is undeniably better, with a lower debt-to-GDP ratio and primary deficit than expected — and much of it not caused by inflation. On the other hand, I also recognize that there was a short-term noise”, he said, participating in the same event.

The external environment also helped, due to the positive performance of commodities, mainly iron ore.

For economist Cesar Bergo, an investor partner at Corretora OpenInvest, “the relative political appeasement, even from a scenic point of view, is important”. But there is still a lot of concern, he says, about tax reform. “The market’s view, after several optimistic speeches by minister Paulo Guedes, is that there will be a new design by the Ministry of Economy for tax reform and that, somehow, it will not remain forgotten,” he said.

Bergo believes that the most favorable investment environment must remain. He doesn’t bet, for example, on a new rise in the dollar. “For the end of the year, the expectation is for the US currency to remain at R$ 5.20. Anything above that is the result of political stress. There is no reason for a more expensive dollar, with exports increasing and favoring the entry of foreign currency into the country. Anyway, the facts indicate that this week will be calmer than the previous one”, he highlighted.