The Central Bank released this Tuesday (10th) the open letter sent to the Minister of Finance, Fernando Haddad, by the President of the Central Bank, Roberto Campos Neto, and by the President of the National Monetary Council (CMN), Cristiano de Oliveira Lopes Cozer, in which they explain the main factors that led inflation in 2022 to exceed the upper limit of the target, which was set at 3.25% as the center, with 4.75% as the ceiling and 1.75% as the floor.
According to the document, one of the main causes was the “inertia of the previous year’s inflation”. Then, the rise in commodity prices, mainly oil, was also one of the reasons.
In addition, they highlighted the “imbalances between demand and supply of inputs and bottlenecks in global production chains”.
The IPCA (Extended Consumer Price Index) —which measures the country’s official inflation–, increased by 5.79% in 2022, informed the IBGE (Brazilian Institute of Geography and Statistics) this Tuesday (10).
Climate issues were also included in the justifications, highlighting the results of food price shocks.
The year 2022 was also marked by greater flexibility in isolation from the pandemic, caused by the drop in cases of Covid-19. This fact made it possible to resume the demand for services and employment and, consequently, increased mobility.
On the other hand, the document points out several factors that acted in the opposite direction, reducing the deviation of inflation from the target:
- reduction in taxation on fuel, electricity and telecommunications;
- behavior of the electricity flag, which went from water scarcity to green flag;
- currency appreciation;
- output gap in the negative field.
“In this sense, the role of tightening monetary policy in containing inflation is highlighted. Monetary policy, which in 2021 had already moved from extraordinarily high stimulus into contractionary territory, moved substantially into contractionary terrain in 2022.”
Campos Neto said that BC projections updated in December are that the index will continue to fall in 2023, ending the year at 5%, a level lower than last year.
“In this scenario, in 2023, inflation still remains above the target, mainly due to the hypothesis of the return of federal taxation on fuels in that year and the inertial effects of inflation in 2022”, he said.
Despite this, he stated that the scenario is one of convergence of inflation to the targets, with IPCA projections of 3% in 2024 and 2.8% in 2025, both with a target of 3%.
This is the seventh time in Brazil that a BC president has presented a letter to the Minister of Finance (or Economy), who presides over the National Monetary Council, to justify the breach of the inflation target of the previous year.
Explanations have already been given in the openings of 2002, 2003, 2004, 2016, 2018 and 2021. In the most recent one, Campos Neto had stated that he was taking the necessary measures for the IPCA to reach the targets in the following years.
The rule determines that the president of BC publishes the letter whenever inflation closes the year outside the tolerance intervals for the IPCA.
In the inflation targeting regime, in force since 1999, the National Monetary Council (CMN) sets a target for the IPCA each year, in addition to a tolerance interval.
In 2023, according to the Focus bulletin released by the BC, the market expects consumer inflation measured by the IPCA to stay at 5.36%, far from the target center of 3.25%, and above the ceiling of 4. 75% established for the tolerance range.
Source: CNN Brasil
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