The market has already predicted, since the end of October, that inflation will exceed the 4.5% considered as the "maximum" in the target system. Last week, economists forecast an IPCA of 4.64% for the year.
The government raised its estimate for the Broad National Consumer Price Index (IPCA), the country's official inflation measure, from 4.25% to 4.4% for 2024.
This information was released in the Macroeconomic Bulletin, published this Monday (18) by the Secretariat for Economic Policy (SPE) of the Ministry of Finance.
Thus, the government indicates it does not expect inflation to exceed the 4.5% ceiling of the target system this year — something that the financial market has been projecting since late October.
Last week, the market raised its inflation expectation for 2024 to 4.64%, marking the seventh consecutive increase. This estimate was released on Monday.
According to the Deputy Secretary for Economic Policy at the Ministry of Finance, Raquel Nadal, the government is considering a yellow tariff flag in December, with a smaller impact on inflation.
"A large part of the difference [between the government and the market] may be concentrated in the tariff flag at the end of the year. It tends to contribute 0.17 percentage points [lower in the IPCA]. Without that, we are fairly aligned with what the market is seeing," Nadal told reporters.
In October, the IPCA was 0.56%, and over the 12 months up to last month, the index accumulated a rise of 4.76%, above the target ceiling. However, the target is only considered missed for full years.
The central inflation target for this year is 3% and will be formally considered met if the index fluctuates between 1.5% and 4.5%.
Inflation control policy is a function of the Central Bank, which acts mainly through setting the interest rate.
If inflation projections are in line with targets, it may lower interest rates. If they exceed the goals, it raises the Selic rate. This has been the trend in recent meetings.
If the inflation target is not met, the Central Bank must write and send a public letter to the Minister of Finance explaining the reasons.
The Central Bank has been warning for months that the policy of increasing public spending, defined by the federal government under the coordination of the Ministry of Finance, has pressured inflation — forcing the Copom to take a more aggressive stance with the Selic rate.
The government has been analyzing, for a few weeks, proposals to reduce spending — not yet announced — to maintain the fiscal framework.
In addition to rising expenditures, another factor that has pushed inflation up this year is climate-related issues, such as drought, which has impacted electricity and food prices.
"By the end of the year, there should be a slowdown in monitored prices [public services whose rates are regulated or authorized by the government], reflecting mainly the expected changes in electricity tariff flags. However, free prices are expected to continue accelerating, reflecting the dynamics of more volatile items, more affected by exchange rates and climate," the Ministry of Finance reported on Monday.
For 2025, the Ministry of Finance raised its inflation estimate from 3.40% to 3.60%.
Why does this matter? Higher inflation reduces people's purchasing power, especially those with lower incomes. This happens because product prices rise without a corresponding increase in wages.
Gross Domestic Product
The Secretariat for Economic Policy (SPE) of the Ministry of Finance also raised its projection for Gross Domestic Product (GDP) growth from 3.2% to 3.3% for this year.
GDP is the sum of all goods and services produced in the country and is used to measure economic growth.
"Marginal changes led to the revision of the growth estimate, highlighting a slight increase in expected GDP expansion in the third quarter. For the next two quarters, growth in activity is projected, although at a slower pace than observed in the first two quarters of 2024," reported the Ministry of Finance.
For 2025, the government maintained its projection of 2.5% growth for the Brazilian economy.
Last week, the financial market estimated GDP expansion of 3.10% this year and 1.94% in 2025.
If GDP grows, it means the economy is doing well and producing more. If GDP falls, it means the economy is contracting, i.e., total consumption and investment are lower. However, GDP growth does not always equate to social welfare.
"By 2028, growth should remain close to 2.5%. This estimate is conservative but could surprise depending on productivity and allocative efficiency gains emerging from the Ecological Transformation Plan and tax reform. Increased production and export of oil and renewable energies could also help boost Brazil's growth potential in the coming years," the government evaluated.
Translated from the original by artificial intelligence.
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