Risk of inflation breaking the target limit goes to 100% in 2022 and rises to 2023, says BC

The Central Bank admitted that its inflation will once again be above the target ceiling, defined by the National Monetary Council (CMN) with a limit of 5%. The information is in the Quarterly Inflation Report, released this Thursday (30).

“It is worth noting the increase in the probability of inflation being above the upper limit in 2022, which rose from 88% in the previous report to close to 100%”, says the document. This will be the second consecutive year that the inflation target will be missed, after 2021 inflation closed at 10.06%, well above the 5.25% defined by that year’s ceiling.

Also according to the BC, the chance of the same happening in 2023 increased from 12% in March to 29% in June. Next year, the center of the target was set at 3.25%, with a margin to fluctuate between 1.75% and 4.75%.

To reach the target, the BC raises or reduces the basic interest rate, the Selic, as a way of encouraging (lower Selic) or discouraging (upward Selic) consumption. Lower consumption, for example, slows down economic activity and holds the pace of rising inflation.

At the last meeting, the Monetary Policy Committee (Copom) decided to increase the Selic to 13.25%, already targeting the 2023 target, since the impacts of monetary policy can take from six to 18 months to be felt in economic activity and on inflation.

When the target is totally not met — that is, the IPCA cannot even stay within the margin of error — the president of the Central Bank is obliged to write an open letter explaining the reasons for not having fulfilled its mission. The official projection of the monetary authority is that inflation ends 2022 at 8.85% and reaches 5% next year.