BC will not react to each high frequency data on inflation, says Campos Neto – 14/09/2021 – Market

The president of the Central Bank, Roberto Campos Neto, stated that the monetary authority will do what is necessary to bring inflation in 2022 to the target, but that this does not mean “changing flight plan” with each release of data.

With this, the BC official indicated that, even after the inflation in August surprised upwards, the Copom (Monetary Policy Committee) should follow the signal at the next meeting, on September 21 and 22, and raise the basic interest rate by 1 percentage point, at 6.25% per year.

“We have an instrument in hand that will be used and we understand that we can take the Selic to where it needs to be taken so that we have a convergence of the target in the relevant horizon. But we would also like to say that this does not mean that the BC will react or change the plan of flight for each high frequency data that leaves”, said Campos Neto in an event promoted by BTG Pactual this Tuesday (14).

“In other words, some things we have communicated, we had already anticipated, some things of dissemination [na inflação] they’re a little worse actually on the edge, but we have a flight plan that looks over the longer horizon. This does not mean that we will not reach the objective of stabilizing inflation, but it does mean that we do not necessarily have the need to react to high frequency data,” he added.

For 2021, there is a consensus in the market and in the BC that inflation should exceed the target set by the CMN (National Monetary Council), of 3.75% — with 1.5 percentage points of tolerance for up and down.

​Today, the Copom already targets the inflation of 2022 and 2023, in the so-called relevant horizon, for when the committee understands that the monetary policy can take effect, with targets of 3.5% and 3.25%, respectively.

Last week, the IPCA (Broad National Consumer Price Index) for August was released, which reached the highest rate for the month in 21 years, with 0.87% and reached double digits in the accumulated of 12 months, with 9 .68%. The rise came above market expectations. Analysts consulted by Bloomberg agency projected a 0.71% change.

With the inflationary surprise, economists revised upwards the expectations for the escalation of prices for this year and for the next one. According to the BC Focus report released on Monday (13), the market expects inflation to reach 8% in 2021 and 4.03% in 2022.

It is the 23rd time in a row that the survey shows an increase in the estimate for inflation in 2021.

To face the pressure on prices, economists consulted by the BC project that the Selic should close the year at 8% per year.

Last month, BC Monetary Policy director Bruno Serra stated that the Copom could further accelerate the rate of interest rate hikes, raising the Selic rate above 1 percentage point at each meeting, if the scenario worsened, which was reinforced by Campos Neto later.

At the BTG event, Campos Neto also spoke about the dynamics of current global inflation, which proved to be more persistent than expected. According to him, the thesis among more optimistic central bankers was that the prices of services, which fell during periods of strong social distance, returned more slowly after the reopening because they are historically more rigid.

The theory even projected that the prices of goods would quickly stabilize.

“That doesn’t turn out to be true. Not only is it not getting better, it’s getting worse in some cases. That’s the case with semiconductors [dos preços]. It was expected that it would stabilize in six months and now, after six months, we are talking about a year,” he pointed out.

For the BC president, the problems in the production chains, which interfere with supply and raise prices, were not the main responsible for the rise in inflation, but rather a structural change that led to an increase in demand for some products.

In Brazil, Campos Neto also highlighted the water crisis, which directly affects the value of electricity.
​In addition, he repeated that the fiscal “background” is better than expected and that noises are due to the market perception that the government wants to increase spending with the new Bolsa Família for the 2022 elections.

The BC incumbent pointed out that the noise should decrease when the government explains how the program will be financed and after “turning the page”, economic agents should see the fiscal data, which are better, according to him.