2023-07-11 23:45:30
By Bernardo Caram
(Reuters) – The director of Economic Policy at the Central Bank, Diogo Guillen, said on Tuesday that a benign scenario for inflation is consolidating, but that service prices remain at higher levels.
“In general, this more benign behavior is observed”, said Guillen, hours after the release of positive inflation data in June, highlighting price reduction movements in food and industrial goods.
Speaking at a Sicredi (Cooperative Credit System) event in Anápolis (GO), the director stated that the resilience of service inflation corroborates the “two-stage” disinflation scenario predicted by the BC.
According to him, the country is now going through the second stage, seeking to lower the prices of less volatile items, including services. This process, for Guillen, is more costly.
This Tuesday, the IBGE (Brazilian Institute of Geography and Statistics) showed that the IPCA recorded deflation for the first time in nine months in June, thanks to falls in food and transport prices. The accumulated rate in 12 months was 3.16%, below the center of the target for the year, of 3.25%.
In the director’s assessment, Brazil is experiencing a slowdown in economic activity compatible with the current cycle of monetary policy. For him, the reduction in credit concessions also reflects the level of interest rates.
Concerns about services inflation contributed to a slight increase in the rates of short-term interest futures contracts this Tuesday, with a reduction in bets that the BC will be able to cut the Selic rate by 0.50 percentage points at its next meeting of monetary policy in early August.
Most investors expect a cut of 0.25 pp after the Monetary Policy Committee signaled, in its most recent meeting, its willingness to start reducing the Selic rate, currently at 13.75%.
CONTINUOUS GOAL
In the presentation, Guillen also evaluated that the decision of the National Monetary Council to establish a continuous target for inflation, keeping the target at 3% for 2026, represented the resumption of the credibility of the targets regime.
For him, although the details of the new system have not been formalized by the government, the change helps to bring inflation to the center of the target little by little.
According to the director, the reduction observed in expectations for longer-term inflation, although still above the targets, is also linked, at the margin, to the announcement of the target.
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