Oct 16, 2023

The median inflation forecast for this year has returned to within the target range for the first time since June of last year.

According to the Focus Report, the financial institutions surveyed by the Central Bank estimate an IPCA of 4.75% by the end of the year.

The value is at the upper limit of the target range set by the National Monetary Council, which is 3.25%, with a 1.5 percentage point margin.

Among the institutions classified by the Central Bank as the Top 5 in terms of projection accuracy, the index is even lower: 4.69%.

Last week, the market projected an annual inflation rate of 4.86% for 2023.

According to Jonas Carvalho, founder of Hike Capital, “these revisions probably reflect the current inflation being lower than expected and the high probability of a reduction in gasoline prices.”

September’s IPCA announced last week was 0.26%, lower than the market’s forecast of 0.33%.

“All prices are falling, except for administered prices, which are controlled by the government. It’s a price that is easier to act upon,” he added.

For the coming years, when the inflation target becomes 3%, the forecasts also indicate rates above the center of the target but within the variation range: 3.88% for 2024 and 3.5% for 2025 and 2026.

According to a note from the American bank Goldman Sachs, the projection of inflation above the target center for the coming years “probably reflects the market’s expectation that the government will have difficulties in achieving the announced fiscal goals and will be inclined to tolerate inflation above the target.”

The bank also believes that the projection is influenced by the market’s belief that “the upcoming changes in the composition of the Copom may make it more favorable to more flexible monetary policies.”

The Focus projections for other important indicators remain unchanged compared to last week.

The median market projections for the growth of the Brazilian economy in 2023 remained at 2.92%, according to the Focus.

For 2024, the median expectations for Gross Domestic Product (GDP) growth remained at 1.50%. For 2025, it stayed at 1.90%.

For the basic interest rate (Selic), the median estimates remained at 11.75% at the end of 2023, 9.00% in 2024, and 8.50% in 2025.