© Reuters. FILE PHOTO: Consumers shop at a weekly street market in Rio de Janeiro, Brazil, September 2, 2021. REUTERS/Ricardo Moraes
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BRASILIA/SAO PAULO (Reuters) – Brazilian economists have reduced their long-term inflation expectations, putting an end to months of unchanged projections that the central bank had cited as a cause for concern.
According to the median forecast of a weekly central bank survey on Monday, 2025 inflation projections now stand at 3.9%, down from the previous estimate of 4.0% calculated since March 24. The expectation for 2026 has also decreased to 3.88% from the previous 4.0% forecast since March 17.
The central bank has consistently expressed concern about increased inflation expectations for long-term horizons in its justifications for the need to keep the benchmark interest rate at a 13.75% cycle-high, which has remained steady since September despite cooling inflation.
This policy stance has faced frequent criticism from President Luiz Inacio Lula da Silva, who sees it as hindering economic growth.
Central bank chief Roberto Campos Neto had already emphasized last week that long-term inflation expectations would start to decline, pointing to a clearer economic environment.
The weekly survey also showed lower inflation forecasts for 2023 (5.42% from 5.69%) after consumer prices decelerated more than expected in May.
Nevertheless, the current reading remains well above this year’s 3.25% inflation target.
Inflation expectations for 2024 also dropped to 4.04% from 4.12% in the previous week, still above the 3.0% target, which is also the official goal for 2025.
“The improving inflation outlook for 2023 should reduce inertial forces for 2024,” Goldman Sachs (NYSE:GS) economist Alberto Ramos wrote in a note to clients. “Furthermore, the improving inflation expectations for 2024 and the longer-term horizon of 2025-26 should be acknowledged and welcomed by the central bank.”
Ramos estimated that this scenario should enable the central bank to start cutting rates in August. The next monetary policy decision is scheduled for June 21.
Source: Investing.com
