The Central Bank (BC) revised the growth forecast for Bruno Domestic Product (GDP) in 2024 from 1.7% to 1.9%. GDP is the sum of all goods and services produced in the country. The forecast is contained in the inflation report released by the monetary authority this Thursday (28).
In the assessment of the Central Bank, the Brazilian economy showed “slightly greater dynamism than expected” at the beginning of the first quarter of this year. BC estimates, however, indicate that the agricultural sector is expected to have slightly lower results than in 2023, after a large increase observed last year.
Inflation
In June, the BC’s projection is that inflation measured by the Broad Consumer Price Index (IPCA) will reach 4.02% in 12 months. According to the report, inflation should decline at a slower pace over the next few months. However, prices are expected to continue to rise above the 3% inflation target. The BC’s projection is inflation of 3.5% in 2024 and 3.2% for 2025 and 2026.
“In the last year and a half, what we see is that Brazil is making inflation converge [para dentro da meta], even though this last mile is a little more painful”, highlighted the president of the BC, Roberto Campos Neto. Inflation targets have a tolerance range of 1.5 percentage points up or down. In other words, the lower limit is 1.5% and the upper limit is 4.5%.
Among the factors that kept 2023 inflation above the target, the report highlights the end of exemptions on gasoline and ethanol. In the second half of 2022, the fuel rates for the Social Integration Program (PIS) and the Contribution for Social Security Financing (Cofins) had been reduced. The measure was reversed in February last year.
Roberto Campos Neto – Photo: Paulo Pinto/Agência Brasil
Job market
The warming of the job market and the fall in unemployment rates led, according to the report, to an increase in workers’ real income “at a faster pace than expected”.
The unemployment rate, measured by the Continuous National Household Sample Survey (Pnad), was 7.8% in the quarter ending in February this year. The rate is higher than the 7.5% recorded in the immediately previous quarter (ending November 2023). On the other hand, it was below the 8.6% in the quarter ended in February last year.
For Campos Neto there are still doubts as to whether the warming of the job market and the increase in economic activity could have an impact on inflation. “The fact that there is a slight upward surprise in growth does not necessarily affect our inflation projection. We need to see how this will be transmitted to the pricing part”, he said.
The scenario without changes at present, but with uncertainties regarding the coming months, makes it difficult, in the assessment of the BC president, to predict whether the basic interest rate will continue to be reduced at the same pace in the next meetings of the Monetary Policy Committee. Last week, the committee cut the rate by 0.5 percentage points, which stood at 10.75% per year. “There is more uncertainty, but the fundamental scenario has not changed,” stated Campos Neto, pointing out that the difficulties in forecasting are both in relation to the Brazilian economy, as well as what is happening abroad.
