Bolsonaro: Last year of rule

Controlling inflation in Brazil will be the main challenge for the last year of the current president’s term Jair Bolsonaro (PL), the evaluation of economists heard by UOL. Despite the needs in other areas, such as job and income generation, they claim that the electoral dispute in 2022 will leave no room for structural reforms in the economy.

The general feeling is that in the year Bolsonaro seeks re-election, the government will not be able to push forward administrative and tax reforms in Congress – two of the priorities on the economy minister’s list, Paulo Geddes. space for New work fix, which the government has denied, is also restricted.

In this way, in the opinion of economists, it will be up to the government to control inflation in Bolsonaro’s final year – a task that, in fact, has more to do with the central bank, which has Autonomy to determine the level of Cilic (Primary interest rate), which is for the Ministry of Economy.

The issue of inflation is important, but it is on the agenda of the Central Bank. It obviously could have a helping hand with regards to the public account, but that’s not going to happen. I don’t know what the Ministry of Economy’s agenda for 2022 is in this context. Because, if you’re not going to renew, what are you going to do? It will be idle for a year.
Alexander Schwartsman, Economist and Partner at Schwartsman & Associados

Why is inflation a challenge?

Since the second half of 2020, the official IPCA price index in Brazil has been accelerating. Behind the movement factors such as Global demand for food, high in world oil prices it is in Drought affecting electricity generation.

This has prompted Brazilians to pay higher prices at the supermarket, gas station and at home on their electricity bill.

Figures from the Brazilian Institute of Geography and Statistics (IBGE) show the latest trend in inflation:

IPCA accumulation at 12 months:

• December 2020: 4.52%
• January 2021: 4.56%
• February 2021: 5.2%
• March 2021: 6.1%
• April 2021: 6.76%
• May 2021: 8.06%
• June 2021: 8.35%
• July 2021: 8.99%
• August 2021: 9.68%
• September 2021: 10.25%
• October 2021: 10.67%
• November 2021: 10.74%

Inflation in Brazil is on track to close out 2021 above 10%, and the target being sought by the central bank is half that, at 5.25%. For 2022, the financial market currently expects inflation close to 5%, but some economists claim that the result could be much higher than this value. BC target is 5% max.

Controlling inflation is a ‘potential challenge’

Economists have heard UOL They stated that there are many difficulties to be overcome in the economic sphere. But since 2022 is an election year, controlling inflation is the “potential challenge”.

Economist Mauro Schneider, of MCM Consultores, says the reforms called for by Economy Minister Paulo Guedes will have little chance of moving forward in 2022.

I don’t think any of it [reformas] It will progress in 2022. From a more realistic point of view, the greater challenge lies in the hands of the central bank in particular, in terms of restoring market confidence in a coherent control of inflation. We’re talking about a year where only BC is working.
Mauro Schneider, Economist at MCM Consultores

Schneider claims that by containing inflation, British Columbia will improve the outlook for the Brazilian economy. Controlling higher prices can make the economic environment more positive – which is key to restoring productive employment and investment.

The government helps if it doesn’t spend much

“If the government can help in this process of restoring credibility, that would be very positive,” Schneider adds. This government aid goes through public spending.

If in 2022 the government does not spend more than is already planned in the budget, experts say, then this will already represent a contribution to the control of the IPCA.

For José Faria Júnior, partner at Wagner Investimentos, the improvement in the business environment also depends on the fight against inflation.

The challenge for the government is to improve the malaise of the economy. By the way, this is the only chance for Bolsonaro to be re-elected. This involves trying to reduce inflation and alleviate unemployment through the payment of grants, such as Auxílio Brasil.
José Faria Júnior, Partner of Wagner Investimentos

BC has already indicated that it will act

In recent interviews, Roberto Campos Neto, President of British Columbia, has indicated that the institution will raise interest rates as much as necessary to contain inflation.

Since March 2021, British Columbia has been raising its base rate (Selic) to prevent prices from rising. After hitting 2% per annum, the interest rate is now at 9.25%. In the financial market, there are already those who expect a Selic rate of 14.25% per annum in 2022.

With the newly won AutonomyBC will tend to continue the process in 2022, although raising interest rates is unpopular for Bolsonaro’s government in an election year.

It is very important to move forward with this process. [de alta de juros]. Let’s pursue the goal [de inflação]The process will continue until expectations are proven. We understand that this is very important.
Roberto Campos Neto, President of British Columbia

Low growth and high inflation

According to Ricardo Leit, head of the variable income area at Diagrama Investimentos, Brazil is currently at risk of stagflation – a combination of economic stagnation and high inflation.

“The challenge for 2022 is to get inflation back to target. Although I don’t think the IPCA will be below 6% next year,” Light said. BC’s target is an IPCA of up to 5%.

The economist also has doubts about the ability of BC to control prices only by raising interest rates.

We’re talking about supply chain inflation, not consumption. At the same time, economic growth did not live up to expectations. The central bank will have to balance higher interest rates so as not to kill growth.
Ricardo Leit, Diagrama Investimentos