Ipea revises inflation forecast for the year to 7.1%

The Institute for Applied Economic Research (Ipea) changed its projection for this year’s inflation. The Extended Consumer Price Index (IPCA) was revised from 5.9% to 7.1%. Part of the explanation for the change is the expectation of more accentuated readjustments for gasoline and electricity, which refers to an increase in the projection of monitored prices from 9.5% to 11%. Another pressure comes from food prices on the international market, which should end the year above expectations, in particular animal proteins. This movement raises the projection of food inflation from 5% to 6.9%.

The data are in the Outlook on Inflation with information up to July and the projection for 2021, released today (24).

“A large part of this large review that we made of the IPCA is due to what has already happened. In fact, the recent IPCA surprised negatively. When we made the last forecast back there, we didn’t expect a readjustment in the banner. We were already on a level 2 banner, but I didn’t expect to have this tariff readjustment and the commodities that continued to grow over the months, so a good part of this review that we made in the IPCA is already very much in agreement with what happened,” he explained the author of the study and researcher at the Conjuncture Group of IPEA, Maria Andréia Lameiras, in an interview to Agência Brasil.

As for the international market, pressure from raw materials is expected, which combined with the increase in the use of installed capacity in the industry and inventories below the desired level, are factors for the maintenance of high prices for industrial goods. The segment’s inflation projection rose from 4.8% to 6.6%. The long-awaited resumption of the service sector brought inflation in this segment at a higher pace than initially expected. The forecast, then, went from 4% to 5%.

The IPEA also highlighted the 4.76% increase indicated by the IPCA for the period from January to July, a level above the center of the inflation target of 3.75%. Although part of this inflationary pressure is expected, given the damping of readjustments in 2020, the consecutive rises in commodity prices on the international market and adverse weather events, such as the long drought and the occurrence of frosts in agricultural production regions, surprised negatively and triggered further increases in food and energy prices.


The projection for the National Consumer Price Index (INPC) in 2021 was also revised, and rose from 5.1% to 6.4%. The Directorate of Macroeconomic Studies and Policies of IPEA understood that the increase in the rate of inflation measured by this indicator, which affects families living in urban areas and with salaries ranging from one to five minimum wages, should be pressured by monitored prices and food, with forecast increases of 10.5% and 7.9%, respectively. Previously, the projected percentages were 9.2% and 5.2%, respectively.


For next year, forecasts take into account an accommodation in international commodity prices and the low probability of an intense adverse weather phenomenon, as occurred this year with the lack of rain and frost.

If the forecasts are confirmed, the pressure on food, fuel and electricity would be less. Projections also rely on a stronger recovery in the labor market and its positive effects on demand. In addition, the signs of permanence of the trajectory of high interest rates may contribute to reduce variations in the prices of goods and services. It was with this scenario that Ipea projected the IPCA at 4.1% and 3.9% for the INPC.

IPEA adds, however, that the risks to inflation in 2022 are still associated with commodity prices and the exchange rate. According to Maria Andréia Lameiras, for the coming months and for 2022, despite the pressure on inflation may be lower than what was seen up to July, there is a concern with free prices, such as industrial goods and services.

“[A] Industrial goods rate has cost pressure, with an increase in commodities that has impacted the cost of raw materials. We are also seeing an increase in installed capacity, inventories were reduced. In fact, there is a movement of administered prices and service prices, which we already knew would happen and are proving a little stronger than we were initially forecasting”, he said.

For the researcher, vaccination has been advancing rapidly and, as a result, the increase in mobility in cities, which has been taking place, is appearing in the service sector. This is generating a faster recovery in services prices and this scenario is expected to continue into 2022.

“If you look at that we are going from 7.1% to 4.1% next year, it is a scenario of deceleration, yes, but when we look at the 4.1% number, it is not a comfortable number and is above the target. It is a number that will be achieved, but at the expense of continuing a contractionary monetary policy. We are imagining that the cycle of high interest rates at the Central Bank will continue in 2022 and we know that this controls inflation, but it also brings a loss to the level of activity. Although it is a better scenario and a deceleration, it is still not a comfortable inflationary scenario”, he said.


According to the researcher, the risks for inflation next year are the possibility of repeating, for the second year in a row, a pressure from the climate phenomenon La Niña, which would interfere with the capacity of reservoirs and force the use of thermoelectric plants for a longer period of time, which increases the price of energy. In addition, a new readjustment on flag 2 would bring additional pressure on electrical energy.

The situation would be aggravated in the case of maintenance of the trajectory of commodity prices, which could grow with greater force and generate new increases, added to the pressure on the price of oil. The exchange rate would also be a negative influence.

“Although we expect a more dynamic job market next year, growth forecasts for next year are still compatible with a scenario where we cannot see an explosion in demand, so there is a better job market , but demand pressures at the moment are not too great for next year. Now, there is a crucial problem, because if there is any movement or instability in the country that generates a cycle of exchange devaluation, we know that this will hit inflation hard,” he explained.

“Next year there is an election and there are reforms that are still stalled in Congress, and that is bringing some instability. If we have this scenario of a new climate crisis, large acceleration in commodity prices and, especially, the exchange rate devaluing, in fact 4.1% [para o IPCA] turns out to be an optimistic forecast. At this moment, we do not see any of these three things, but the risks exist and cannot be disregarded”, he said.

Listen on the National Radio Agency: