Brazil analysts expect faster Inflation, interest rate calls for 2016

By Money Times

Oct 28, 2015 02:37 AM EDT

Brazil analysts expect faster inflation and lesser cuts in the base interest rate for 2016, as political crisis hinders the moves to strengthen fiscal accounts and avoid another sovereign downgrade to junk. 

Bloomberg reported that a central bank survey conducted on 100 analysts on October 23 shows that the basic tax defined by the government of Brazil, or the Selic rate is projected to be 13 percent by the end of 2016. That is an increase from last week's 12.75 estimate. It has been the third consecutive week since that forecast went up. Meanwhile, inflation next year is seen by the analysts to reach 6.22 percent, a leap from the 6.12 percent from the previous week's expectation. 

According to Reuters, the central bank survey shows that the forecasts for Brazil's inflation rate for 2016 increased for the 12th consecutive week and has reached the ceiling of the government's target. That poll also showed lower forecast for economic growth this year and the following year. This projection is the longest period of economic contraction since way back 1930s. The government was targeting an inflation rate of 4.5 percent, with a 2-percent point tolerance margin. 

Meanwhile, News Max Finance reported that Brazil's policy makers blamed weaker currency and higher government-administered prices as the major causes of the fast inflation rate. However, it is not that simple, according to economists. The price increase that goes beyond 4.5 percent target is rampant in the country, that six out of the nine product groups still have a yearly inflation rate that exceeds eight percent. These items include education, food, healthcare, and beverage. 

The overall consumer price index went up 9.49 percent in the 12 months to September. The ones that aren't under government influence, especially those freely determined prices, are higher now that they used to be when the central bank started to increase the benchmark rate last October.

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