The president of the Central Bank, Roberto Campos Neto, admitted this Monday, 15th, that Brazilian inflation remains “very high”, despite the improvement in recent months. “Managed inflation is falling with government measures, but services are rising. We are starting to see some signs of stabilization in industrial goods. But we look at inflation more in the long term, we are not so guided by short term noise. We understand that there is a mechanism to reduce inflation and it is very difficult to model the impact on the chains”, he said, at an event promoted by the Millennium Institute.
Campos Neto recalled that the market has changed inflation expectations for 2022, but not for 2023 and 2024. “It’s as if there were government measures pushing inflation down, for the components of subsequent years they are stronger than the inertia of the current year’s fall ”, he evaluated.
For him, it is already possible to see a deceleration in the production bottlenecks of some products, such as semiconductors, in addition to the normalization of international freight. “Most countries still have inflation expectations above the target in 2023.”
persistence and spread
Campos Neto also said that, with the change in the level of world inflation, there is also greater persistence and dissemination of high prices. “We are starting to see a world of higher inflation and inflation is more widespread. Even in developed countries where inflation is more concentrated in energy, we are starting to see that it is spreading down the chain,” he said.
For him, there is a dichotomy in the United States between high inflation and activity that is starting to fall. “In the United States, we started to see a slight return in inflation, but cores remain high. This tends to be temporary, but the question is how temporary it will be.”
The president of the Central Bank also said that the tax measures taken by the government in recent months have already caused energy inflation in Brazil to subside significantly. At the event promoted by the Millennium Institute, he recalled that the consumption of goods increased during the pandemic, while the consumption of services fell. “To produce the same added value in goods, five times as much energy is spent on services,” he repeated.
He also cited the effects of the war between Ukraine and Russia on global prices of energy commodities, in addition to the reduction in investments in power generation in recent years.
Campos Neto also said that the main economies in the world continue to raise interest rates to try to contain inflation and repeated that Brazil took the lead in this process. “The only places where the market does not price higher interest rates are Brazil and Japan, and in the case of Japan for a very specific issue,” he said.
In this sense, he pointed out that the world is clearly decelerating in terms of activity, while Brazil has had upward revisions in its 2022 GDP projections. “The United States, Europe and China are clearly decelerating. The probability of a worldwide recession is high, but how the workforce has structurally changed it is very difficult to compare with the past,” he added.
The president of the Central Bank also assessed that indexation in Brazil has dropped a lot, but recalled that the country still has a great history of indexation. “It is precisely because the Brazilian economy is more indexed that this is taken into account when making decisions. Every central banker can make two mistakes, either doing too much or not doing enough. Every central banker bounces between these two mistakes, trying not to make any. In a poorly indexed country, I can take a little more risk and be a little behind (the curve). But this is not the case in Brazil. Here, the mistake of letting inflation return and generating rapid indexation ends up generating a big recession ahead. We’ve seen this in the past,” he commented.
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