Market sees double-digit inflation in 2021 for the 1st time and worsens forecast for GDP

Financial market analysts’ estimates for inflation and economic growth for 2021 and 2022 continue to deteriorate. For this year, the forecast of the Broad Consumer Price Index (IPCA), the country’s official inflation, has already reached 10.12%.

Despite consecutive highs in recent months, this is the first time that the projection for inflation for 2021 exceeds double digits. A month ago, the market still expected the index to end the year at 8.96%.

The numbers are from the Focus Bulletin of the Central Bank (BC), released this Monday (22). The document brings together the estimates of more than 100 financial market institutions for the main economic indicators.

Inflationary pressure should also continue in 2022. The forecast for next year is for an IPCA of 4.96%, touching the ceiling of the inflation target.

According to the inflation target set by the National Monetary Council (CMN), the IPCA should not exceed 5.25% this year. The target center is 3.75%, however, the 1.5 percentage point tolerance margin up or down allows the index to vary from 2.25% to 5.25%. In 2022, the target is 3.5%, with a tolerance of up to 5%.

Selic is the monetary authority’s main tool for controlling inflation. Thus, analysts also raised the Selic forecast for next year from 11% per year to 11.25% per year. In 2021, a further increase of 1.5 percentage points is expected so that the rate goes from the current 7.75% pa to 9.25% pa.

While inflation expectations for this and next year advance, projections for economic growth in both periods continue to decline.

The average forecast of financial agents for the Gross Domestic Product (GDP) 2021 dropped from 4.88% a week ago to 4.80%. For 2022, a slight increase of 0.7% in economic activity is expected.