Inflation rose 0.23% in May, the lowest level for a month in the past three years. This would be very positive news indeed after a long period in which the index pressed relentlessly into Brazilians’ pockets. But, in general, the IPCA has shown a more moderate dynamic in recent months, which confirms the success of the strategy of the Central Bank (BC) to tame prices.
Food and beverage velocity, one of the groups that penalizes consumers the most, fell from 0.71% in April to 0.16% in May. Services, which continue to put pressure on the overall index due to a post-pandemic recovery in demand, moved from 0.52% in April to a 0.06% decline in May – heavily influenced by airline tickets, which fell 17.73% and made the largest contribution to IPCA’s behavior as a whole.
The euphoria from the good results of the index was such that some institutions do not rule out a one-time contraction in the month of June. In the latest issue of the newsletter to focusAnalysts cut inflation estimates for the year from 5.69% to 5.42%, which is still above the ceiling target of 4.75%, but much closer. Even projections for 2024 and 2025 yielded the IPCA, respectively, to 4.04% and 3.90%. They were impressed by the reduced financial risk resulting from the approval of the framework in the room, but still express some apprehension that the targets could be changed by the National Monetary Board (CMN).
The results clearly increased the burden on the central bank’s Monetary Policy Committee (Copom), which meets on the 20th and 21st of this month to set the base interest rate – currently at 13.75% per annum. Aware of this situation, in its pre-Cobbum questionnaire, the monetary authority asked financial institutions to provide not only their forecasts for the June meeting, as they usually do, but also for decisions the university would make in August and September.
It is a more accurate way to gauge customer sentiment without causing unwanted interruptions in communication. Obviously, the Lula government wants an immediate cut in Cilic’s rate. in the newsletter to focusMost economists expect rate cuts to begin in September. But, last week, after the surprise of the IPCA in May, some institutions revised their forecasts and assessed that there are conditions for the rate cut cycle to start a month earlier, in August.
In this scenario, Roberto Campos Neto, President of British Columbia, took advantage of public events to defend the Foundation’s activities. According to him, if BC had not been raised in the middle of an election year, the cumulative inflation in 12 months would have reached 12% or 13% per annum. Criticisms about the severity and duration of monetary tightening aside, the fact is that the IPCA backlog in 12 months was below the 4% level in May, a feat not seen since October 2020. Here is a good reason to maintain the formal independence of the institution.
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