Brazil's 2021 inflation outlook climbs to new high, above central bank target: survey

BRASILIA: The outlook for Brazilian inflation this year rose for a seventh week and to a new high, a central bank survey of economists showed on Monday, while official interest rates are now expected to double by the end of the year.

The average forecast for IPCA consumer price inflation at the end of this year rose to 3.8% from 3.6%, according to the latest weekly 'FOCUS' survey of over 100 economists.

That is above the central bank's goal of 3.75%, with a margin of error of 1.5 percentage point on either side, and the highest 2021 forecast in the series.

The average inflation forecast over the next 12 months rose to 3.8% from 3.7%. The central bank's end-2022 goal is 3.50%.

A persistently weak exchange rate, strong global commodity prices, and growing concerns over the government's fiscal position are all pushing inflation expectations higher, and with it interest rate expectations.

The average forecast of the benchmark Selic rate at the end of this year rose to 4.00% from 3.75%, the survey showed, indicating that the market now expects the Selic rate to double this year from its current record low 2.00%.

Last month, the average end-2021 outlook was 3.25%. But the central bank dropped its forward guidance at its Jan. 19-20 policy meeting, citing inflation expectations rising close to target over the next couple of years.

Economists at Credit Suisse and Barclays expect the central bank to raise rates as early as next month.

The FOCUS survey also showed that economists expect the real to end this year at 5.05 per dollar, up from 5.01 per dollar last week. It is currently trading around 5.40 per dollar.