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Brazil’s central bank says it will miss inflation target in 2022



Brazil’s central bank signalled inflation will end 2022 above target while saying a “significantly restrictive” cycle of interest rate hikes will help pull cost of living increases be
low 5%.
Inflation is converging to target over the relevant time horizon, which includes 2022 and 2023, bank chief Roberto Campos Neto wrote in a letter published on Tuesday. “In this scenario, in 2022 inflation remains above target but within the tolerance range given the inertial factors seen in 2021,” he wrote.
Annual inflation hit 10.06% in December, the national statistics agency reported, above the central bank’s 3.75% target and tolerance ceiling of 5.25%. By law, the bank president has to write a letter to the Economy Ministry whenever the year-end increase is above or below the tolerance range.
Global factors including high commodity prices represented main drivers of last year’s inflation, Campos Neto wrote. A severe drought also pushed electricity bills up. Complicating matters, the real failed to strengthen despite an increase in exports as investors weighed the country’s fiscal woes.
The central bank has hiked the interest rates by 725 basis points since March to 9.25%. In his letter today, Campos Neto wrote a third consecutive 150-basis points increase is expected in February during the first monetary policy meeting of the year.
Since the start of Brazil’s inflation-targeting regime in 1999, every central bank chief has had to write a similar letter in at least one occasion. The last time inflation was outside the tolerance range was in 2017 under Ilan Goldfajn. At that point, consumer price increases ended the year at 2.95%, below the tolerance range.
Brazil’s central bank will target inflation at 3.5% this year and 3.25% in 2023, with tolerance ranges of plus or minus 1.5 percentage points.

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