Brazil's Inflation Forecasts

By Marcela Ayres
BRASILIA (Reuters) – Brazil's finance ministry has adjusted its inflation forecasts for this year, now predicting an increase to 4.4% from an earlier estimate of 4.25% made in September. This forecast is close to the upper limit of the official target range, which is set at 3% with a tolerance of 1.5 percentage points.

The ministry cited factors such as volatile prices influenced by exchange rates and weather conditions as reasons for the upward revision. In contrast, private economists, surveyed weekly by the central bank, anticipate a 4.64% rise in consumer prices this year.

During a press conference, economic policy secretary Guilherme Mello noted that the discrepancy was minimal and attributed it to expectations of lower electricity tariffs in December. The inflation forecast for 2024 was also raised from 3.4% to 3.6%, partly due to recent depreciation of the Brazilian real, which has fallen approximately 16% against the U.S. dollar this year amidst fiscal uncertainties and global volatility.

Financial institution Itau recently revised its own inflation predictions to 4.8% for this year and 5.0% for next year, attributing this to a weaker currency's impact on industrial goods, rising service prices, and a planned fuel tax increase by states in February. Consequently, Itau now projects interest rates to peak at 13.5%—up from an earlier forecast of 12%—and to remain at that level through the end of next year, while the current Selic rate stands at 11.25%.

For economic growth, the finance ministry has slightly upgraded its GDP growth forecast for 2023 to 3.3%, from 3.2%, while maintaining its estimate of 2.5% for 2024.