British Columbia highlights fiscal risks, raises inflation projection to 6.5% in 2021

The Central Bank is raising its inflation forecast to 6.5% this year. Photo: Marcello Casal Jr / Agência Brasil

The Central Bank published on Tuesday (10) the minutes of the last meeting of the Monetary Policy Committee (Copom), where it raised the Selic to 5.25% per year. In the document, autarky projects an inflation of 6.5% for this year. According to the report, the Committee believes that despite recent movements in interest curves, there is still a relevant risk of rising inflation in central economies.

“Consumer inflation continues to be persistent. The latest published indicators show a more unfavorable composition. Remarkable is the surprise with the underlying component of service inflation and the continued pressure on industrial goods, causing hearts to rise. In addition, there are new pressures on volatile components, such as the possible increase in the tariff surcharge and further increases in food prices, both resulting from adverse weather conditions. Together, these factors lead to a significant revision of short-term projections, ”the document states. Copom’s inflation projections are set at 3.5% for 2022 and 3.2% for 2023.

According to the BC, this scenario assumes an interest rate trajectory that rises to 7.00% per annum this year, remains at this value in 2022 and falls to 6.50% per annum in 2023. The document also points out that Extensions of fiscal policies taken as a consequence of the pandemic could push up inflation. “Despite the recent improvement in public debt sustainability indicators, the high fiscal risk continues to create an upward asymmetry in the balance of risks, i.e. with higher inflation trajectories than projected over the relevant monetary policy horizon.

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