There are many risks that lead to higher inflation, says economist

The financial market started to project, through the Focus bulletin calculated by the BC (Central Bank), Brazilian inflation above 5% for this year.

The data represents the 11th consecutive week of rising expectations, consolidating a scenario of pressure on prices that was already anticipated by the market.

Risks tilted towards higher inflation
Patrícia Krause, chief economist Latin America at Coface, assessed that the current scenario presents multiple risk factors pointing to higher inflation.

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"The market already expected that it would surpass this 5% barrier for this year, as it had already been rising for 10 weeks", he stated.

Among the main vectors of pressure, she highlighted the conflict in the Middle East, which maintains geopolitical tension and could increase the prices of energy commodities.

In Brazil, fuel prices are still depressed, without fully reflecting the increase observed in the international market.

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Another factor of attention highlighted by Krause is food inflation. Although the accumulated result in 12 months is still at a relatively controlled level, the prospect of the arrival of the El Niño climate phenomenon in the second half of the year tends to generate pressure on the sector's prices.

IPCA-15 and GDP in focus
Regarding the release of the IPCA-15, preview of official inflation, scheduled for Wednesday (27), Patrícia Krause estimated a monthly reading of around 0.6%, with prices still largely under pressure.

She mentioned that the airfare component could bring additional volatility to the month's reading, even though there is a smaller contribution from the fuel segment compared to April. The result, according to her, should keep inflation accumulated over 12 months on an upward trend.

In relation to GDP (Gross Domestic Product), the economist reported that Coface's projection was already around 1.9% for the year, converging with the Focus bulletin's estimates, which reached 1.89%.

Preliminary data for the first quarter point to a robust economic performance, but Krause projects a gradual slowdown over the coming periods.

"Measures that are being announced could bring some stimulus and, therefore, lead to a slower slowdown in the economy", he pondered.

For the GDP of the first quarter, which is scheduled to be released on Friday (29), the expectation is for growth of around 1% compared to the last quarter of the previous year.

Exchange rate, elections and Selic trajectory
Regarding the exchange rate, Krause pointed out that there are factors favorable to the appreciation of the real, such as the weakening of the dollar, the terms of trade favorable to Brazil and the trade balance surplus.

The still high real interest rate also contributes to the so-called carry trade, maintaining investor interest in the Brazilian market. The economist estimated that the exchange rate should remain at around R$5.00.

For the second half of the year, Patrícia Krause recognized that the electoral scenario tends to introduce additional volatility to the exchange rate, as historically occurs in periods of presidential elections.

However, she assessed that the fact that the possible candidates are names already known by the market can mitigate some of this uncertainty. As for Selic, Focus's projection points to 13.25%, but Patrícia Krause warned that, given inflationary risks, the Central Bank may not be able to reach that level.

"If we don't have a resolution to the conflict, it will probably go meeting by meeting and could reach something closer to 14% than 13.25%", he concluded.

High interest rates discourage consumption and can slow down the economy; understand

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Source: CNN