Brazil inflation should reach Central bank target by second half of 2018

Wednesday, June 29th 2016 - 05:04 UTC

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The second quarter of 2018 should see Brazil finally make the cut, with inflation of 4.2%, the bank said.

The report is the bank's most solid outlook since Ilan Goldfajn became governor this month with the promise to lower inflation to 4.5%

The central bank's 2017 inflation forecast differs from that of the minutes from its June 8 rate-setting meeting

Brazil's inflation will again miss the government target next year, but will be getting much closer at 4.7%, the Central Bank said on Tuesday. For this year, inflation is forecast at 6.9%, well off the 4.5% target. However, even that represents relief for Latin America's largest economy, but sickly economy where annual inflation hit 9.32% in May.

The second quarter of 2018 should see Brazil finally make the cut, with inflation of 4.2%, the bank said. The 6.9% estimate for 2016 is an upward adjustment from the earlier expectation of 6.6%.

The report is the central bank's most solid outlook since Ilan Goldfajn became governor this month with the promise to lower inflation to 4.5%, the center of the official target range.

Goldfajn told reporters later on Tuesday there was no need for the government to raise the 2017 inflation target because the current goal is credible despite being challenging.

In his inauguration speech Goldfajn, former chief economist of the country's largest private lender Itau Unibanco, did not set a time frame to reach the target, raising speculation the goal could be changed to allow for early rate cuts.

“Reaching the center of the target in 2017 is both ambitious and credible,” Goldfajn said on Tuesday. “It is credible because given our inflation projections and economic outlook we have the conditions to reach the target in 2017.”

He added that the bank's success in slashing inflation will depend largely on ongoing economic and fiscal adjustments that aim to regain the confidence of investors.

The bank's 2017 inflation forecast differs from that of the minutes from its June 8 rate-setting meeting when the bank said it estimated inflation at the center of the target for the year.

Market operators also see a less rosy outlook, forecasting seven percent inflation this year and 5.5% through 2018.

Brazil has been hit hard by a worldwide slump in oil and other commodity prices, as well as the fallout from a massive corruption scandal centered on state oil company Petrobras and political paralysis as opponents of suspended president Dilma Rousseff seek her impeachment next month.
Unemployment has hit a record 11.2% and the budget fiscal deficit is 11% of GDP. Likewise GDP plummeted 3.8% last year and is forecast to drop by the same rate this year, marking the worst recession in almost a century.