Brazil economists lower inflation forecasts, but still too high for central bank

By Luana Maria Benedito and Gabriel Araujo

SAO PAULO (Reuters) -Private economists in Brazil lowered their expectation for the country’s inflation index this year, but the move failed to impress central bank Governor Roberto Campos Neto as he continues to see them running well above official targets.

“Inflation expectations are still very high,” Campos Neto told a seminar hosted by newspaper Folha de S.Paulo on Monday, highlighting elevated long-term forecasts as particularly problematic.

Policymakers in Brazil have highlighted de-anchored inflation expectations as one of the reasons for high interest rates, with Campos Neto having previously ruled out imminent cuts despite government pressure for rates to be lowered.

A weekly central bank survey on Monday showed economists now forecast inflation to hit 5.80% at the end of this year, down from a median forecast of 6.03% in the previous week.

The estimate for 2024, however, came in nearly unchanged at 4.13%.

Finance Minister Fernando Haddad said the forecasts were now “in line” with projections from his team, days after reiterating the government thinks there is room for rate cuts to begin.

But Campos Neto was unimpressed, linking the short-term cut to a new fuel pricing policy announced by state-run oil giant Petrobras, which led to lower refinery gate gasoline, diesel and cooking gas prices.

“Long-term forecasts remained little changed,” the central bank chief said. “And we have a problem that are long-term inflation expectations persistently stuck around 4%”.

Brazil has an inflation target of 3.25% for 2023, which will be lowered to 3% in 2024.

In the minutes of its May meeting, the central bank expressed concerns about inflation expectations, saying it continued “to assess that de-anchored expectations raise the cost of bringing inflation back to the target”.

The autonomous central bank has kept benchmark rates at a six-year high of 13.75% since September 2022 in a bid to tame high inflation, driving criticism from President Luiz Inacio Lula da Silva, who sees it hindering economic growth.

At the same event attended by Campos Neto, Senate President Rodrigo Pacheco renewed calls for rates to be lowered.

Campos Neto acknowledged that headline inflation has been slowing down in Brazil, but noted that the core index remains “high” and “well above target”.

(Reporting by Luana Maria Benedito and Gabriel Araujo; Editing by Toby Chopra, Andrea Ricci and Aurora Ellis)