​Inflation and Economic Activity

BRAZIL ECONOMICS - Report 18 Jan 2022 by Affonso Pastore, Cristina Pinotti and Paula Magalhães

Brazil’s inflation in 2021 amounted to 10.1%, only behind Turkey and Argentina. The good news is that with the Central Bank continuing to “do whatever it takes”, inflation will decline during 2022, but the central target will only be attained again in 2023. To achieve this outcome, the SELIC rate will have to be increased to 11.75% at the second COPOM meeting of 2022.

This is our “baseline scenario”, in which the SELIC rate will remain at this level throughout 2022, with the risk of being slightly higher. In other words, this year the (one-year ex-ante) real interest rate will be higher than the neutral level. With this, economic activity should be weak throughout the year, with a high risk of a dip in GDP.

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