Tag Archives: Inflation

Economists reduce Brazil inflation forecast for 2017 and the next 12 months

Market economists reduced their estimate for inflation by the Broad Consumer Price Index (IPCA) in 2017 and in the next 12 months, according to the average forecast in the Focus Bulletin, released on Monday by the Central Bank (BC) .

For this year, inflation bets were reduced from 3.03% to 2.88%, below the floor of the target for the calendar, of 3%. The center of the inflation target is 4.5%. In 12 months, the projection for the advance of prices increased from 3.96% to 3.91%. For 2018, the estimate was maintained at 4.02%.

Last Friday, the Brazilian Institute of Geography and Statistics (IBGE) reported that the IPCA slowed the rise to 0.28% in November, after rising 0.42% a month earlier.

The average estimate for economic growth had a new round of upward adjustments after the IBGE revised positively the Gross Domestic Product (GDP) figures for the first and second quarters of this year. Thus, the projections went from expansion of 0.89% to 0.91% in 2017 and advance from 2.60% to 2.62% in 2018.

For the basic interest rate, Selic, at the end of 2018, the projections were maintained at 7%

IPCA inflation index slows down in November, according to IBGE

Inflation measured by the National Extended Consumer Price Index (IPCA) slowed to 0.28% in November, from 0.42% in October, the Brazilian Institute of Geography and Statistics (IBGE) reported Friday.

In the same month of 2016, the increase had been of 0.18%. Therefore, official accumulated inflation accelerated in 12 months: from 2.70% in October to 2.80% in November, according to the institute.

The IPCA in November was below the average of 0.35% estimated by 27 consultancies and financial institutions. The range of projections was from 0.31% to 0.47%. For the accumulated 12-month period, the expectation was of an increase of 2.88% in the prices

In the 11 full months of the year, the IPCA accumulated a rise of 2.50%, the lowest inflation for the period since 1998 (1.32%). Thus, with just one month remaining in 2017, inflation is below the target floor of 3% – the center is 4.5%, with a margin of 1.5 percentage points up or down.

Brazilian stocks and Real fall amid difficulty in approving pension plan reform

Brazilian financial market reacts negatively again to the noise surrounding the pension reform. According to professionals, this morning’s news brought more negative elements about the possibilities of the government being able to approve the reform, which was reflected in the dollar, interest rate hikes and in the fall of the Ibovespa stock index at the opening of the trading session.

But, half an hour after business started, prices have worsened, reacting to comments from House of Representatives president, Rodrigo Maia, that would have expressed a more pessimistic reading regarding the number of votes to approve the reform.

This market behavior confirms the investors’ sensitivity to the pension plan reform news, something that has already been happening in the last sessions and that intensifies as the deadline for voting approaches.

The importance of this reform for the Brazilian stock, currency and interest markets has already been explained in this article from June in this blog.

Funding of Brazilian companies with debt and equity jumps to R$ 192 billion (US$ 60 bi)

The wind begins to shift to the capital market in the wake of falling interest rates to near historic lows and the contraction of bank credit after two years of deep recession. Since last year, the favorable environment has opened space and consolidates a trend of strong growth for corporate debt issues, along with capital openings and subsequent stock offers, which increasingly assume a major role as a source of financing for large companies .
Between January and September, data from the Brazilian Association of Financial and Capital Market Entities (Anbima) shows that the issuance of fixed income securities in Brazil and abroad by companies plus funding through variable income in the country reached R$ 176.3 billion, or three and a half times the volume of R$ 49.9 billion granted by BNDES in the same period, according to figures from the state bank itself.

For Sergio Goldstein, chairman of Anbima’s corporate finance committee, the expansion is expected to continue in 2018: “the economy probably accelerates next year and thus there’s no way the capital market does not come along.”

A singularly favorable situation fuels this movement of greater participation of the capital market as a source of funds: falling interest rates and prospects that it will remain close to historical lows for a prolonged period, low inflation, growth, albeit gradual, and a change in the policy of subsidized rates by the BNDES.

Brazilian Government Announces Economic Package with 12 Measures

President Michel Temer announced on Thursday (15) a new economic package with measures to stimulate the economy. Also taking part in the announcement were the house or representative’s president, Rodrigo Maia (DEM-RJ), Senate’s President Renan Calheiros (PMDB-AL), Finance Minister Henrique Meirelles and the Minister of Planning, Dyogo Oliveira.

Temer started the announcement saying that the goal is to stimulate growth and reduce unemployment. Before announcing the measures officially, the president commented on the approval of the PEC 241, which limits spending increases for the next 20 years, approved on Wednesday.

According to Temer, “these reforms aim to increase the growth of the Brazilian economy. We never ignored the difficulties that we would have when we took over the government, but we are succeeding in advancing these topics.”

Despite being positive for the economy, these 12 measures are seen as a desperate way to try and deviate the attention from the corruption investigations that are currently hitting Temer’s government right in the core. In any case, the measures are positive. To them:

Tax Debt Negotiation

Finance Minister Henrique Meirelles was responsible for giving more details on each of the measures. The first provides for tax debt negotiation for companies with debts due through November 30. Meirelles said that “any tax debt” is eligible, including social security. For debts that are being questioned in the Court, it is necessary to prove the desistance of the lawsuits.

“The program allows tax negotiations for companies that are preparing to grow again, as macroeconomic adjustment is under way,” said Meirelles.

Guaranteed Property Letter

Another measure, according to Meirelles, is the regulation of the “Letra Imobiliária Garantida”, an instrument of funding for real estate credit. The objective is to broaden the supply of long-term credit for civil construction.

Meirelles said that this type of bond, being both secure and long-term, is an “important alternative source for real estate lending and increases the supply of long-term lending to the industry.” This measure will have to go through public consultation and then be regulated by the National Monetary Council (CMN).

Improvement in the “positive register”

Meirelles also announced the improvement of the positive credit rating, which allows the creditor to analyze the person’s history. Membership becomes automatic, and exclusion has to be requested. The goal is to reduce credit risk and make room for lower interest rates for good payers.

Credit measures

Meirelles says another measure is to allow price differentiation according to the mode of payment. Such a change allows retailers to charge different prices depending on the payment mode used, ie different prices if the customer pays cash or credit card, which is currently prohibited by law. He recalled that it is common for stores to give discounts for purchases made in cash, but not the same on credit cards.

Reduction of card interest

Another measure presented by Meirelles is the reduction of interest rates on the credit card charged to the consumer and the term of payment to the merchant. The minister says the regulation should be submitted within 10 days.

Bank spread

According to the finance minister, the government is also proposing the creation of the electronic duplicate with the objective of reducing the so-called “spread” of the banks (difference between the rate of funding, close to the basic rate of the economy, at 13.75%/ year today, and the rate charged to bank customers).

“We want to create a central registry of duplicates, credit card receivables and allow the granting of credit with a lower guarantee, which increases the security for creditors and the supply of credit for small and medium-sized enterprises, with lower interest rates. “, he said.

Reduction of bureaucracy

On the issue of de-bureaucratization, Meirelles says that they will simplify the payment of labor, social security and tax obligations through a system called eSocial. The objective is to reduce the time spent by companies to fill declarations, forms and books and the redundancy of information provided to the tax authorities. The deadline for implementation in all companies would be July 2018.

Refund of taxes

Another proposal is to simplify the procedures for restitution and compensation of the taxes administered by Receita (Brazilian IRS), including the compensation between the social security contribution and other taxes.

Business Start-up

Meirelles says another measure will reduce the time to open ventures. A national network for simplifying the registration and legalization of companies and businesses will be implemented.

Competitiveness

The government also announced measures to speed up purchases and sales in foreign trade. According to Minister Meirelles, a single web-accessible portal will be created to forward all documents and data required for business transactions with other countries.

“The idea is to cut import and export procedures by 40 percent”, he said. The implementation period for exports is until March 2017 and for purchases from abroad until the end of next year.

BNDES

Following this, the Minister of Planning, Dyogo Henrique de Oliveira, spoke about other measures. The first deals with the increase from R$ 90 million to R$ 300 million the limit to access the BNDES credit for micro, small and medium enterprises.

Companies with up to R$ 300 million in revenues can also renegotiate debts of operations of up to R$ 20 million with the BNDES. Therefore, companies can seek cheaper interest rates, based on the Long-Term Interest Rate (currently at 7.5% per year).

According to him, the total volume of refinancing is estimated at R$ 100 billion, which will “increase the liquidity of companies”.  “Today, companies are suffering from a great deal of liquidity,” said the Planning Minister.

For large companies, with revenues above R$ 300 million per year, operations included in the Investment Support Program (PSI) may be refinanced. “These refinanced amounts will be with BNDES’ own resources, but with funds with TJLP (Long-Term Interest Rate) funding, with a lower cost”, he said.

FGTS

Another measure announced is the distribution of half of the profits in the FGTS to the workers. “That is to say, when there are profits, part of them will continue to be deposited and the other half will be made available to the worker to pay debts or make a different use”, he said.

Still on the FGTS, he announced the gradual reduction of the additional fine of 10% – which is paid by employers at the time of dismissal of employees, on top of the 40% that goes to employees. According to him, the idea is to reduce that 10% at the rate of one percentage point a year to relieve the entrepreneurs.

Brazilian Economy shrinks 0.51% in May, according to the Central Bank

The Brazilian economy has not confirmed the brief improvement in April. The Economic Activity Index Central Bank (IBC-Br) fell 0.51% in May, after growing 0.07% in April (revised), which was the first increase in 15 months. In the year, the decline was a significant 5.79%.

In the 12 months ending in May, the IBC-Br indicates a decrease of 5.43% in the series without adjustment and 5.51% in the adjusted data. Due to the constant indicator review, the IBC-Br measured for 12 months is more stable than the monthly measurement. Compared with May 2015, there was a low of 4.91% in the series without adjustment and 5.32% with adjustment.

The results came worse than expected by the market players. The average of forecasts made by 21 financial institutions suggested a decrease of 0.24% in the month. Estimates ranged from a decrease of 0.9% and increase of 0.1% for the monthly variation.

In the June Inflation Report, the central bank projected a drop of 3.3% in the GDP for 2016, against the previous forecast of a 3.5% decline. Analysts consulted for making the Focus Bulletin also point to a decrease of 3.3% for the Brazilian economy this year.

EWZ: Ibovespa has its best semester since 2009 and US$ drops 18.6% versus the Brazilian Real

Brazilian’s most traded stock ETF in the US, EWZ soared 46.5% in the same 6 months:

EWZ-6-Months

In the beginning of the year, the perspective for the Brazilian market was not good with the country in recession and inflation sky rocketing. However, in the middle of February, the inflection started fueled by a global recover in commodities prices and an improvement in the expectations for the economic policies, which became known as the impeachment rally.

Besides, the downside event of the semester, the Brexit, was followed by an unexpected help which were the speculations that central banks all over the world will stimulate their economies to face market volatility. On Friday, the president of England’s central bank, Mark Carney, said that the growth in the UK will slow down in the next months and additional interest rate cuts and other measures of monetary ease will be necessary.

Sure, Brazil is not out of the woods yet and the new government still has lots to do to recover the economy. However, the better economic climate has started to translate into improvements in the confidence:

Consumer and Industry Confidence in Brazil

Besides the more favorable political environment, what is also helping in this confidence growth is the fact that some economic indicators are improving, albeit still very bad: IBC-Br, Industry and Services.

What to Expect for Brazilian Interest Rate in 2016

Monetary Policy Committee (COPOM) has decided to keep the Brazilian interest rate benchmark in Brazil (SELIC) at 14.25% a year, unanimously. The central bank repeated the note issued with the previous decision, in which it says “we see advances in the inflation fighting but the still elevated cost of living and expectations are out of the target”.

Even with the repeated note, economists started to review their opinions about when the interest rate will go down again. The last meeting was still ran by central bank president Alexandre Tombini. Now, Ilan Goldfajn will be the one responsible  to deal with variables like economic recession and inflation. Inflation, by the way, that was showing signs of reduction but has again showed resilience.

According to newspaper Folha de São Paulo, despite inflation have shown acceleration in May, the interim government of Michel Temer believes that the fall in the US Dollar exchange rate and the credibility of the new economic team opens space for a reduction in the SELIC. The government is working under the assumption of inflation declaration by year end as well as a further drop in the US$. According to the report, Folha’s initial forecast was for a drop in the interest rate in July but now this may be postponed till August.

And that review in expectation was also followed by other investment banks, such as Goldman Sachs and Bradesco. Bradesco now believes the interest rate benchmark will end the year at 12.75% versus 12.25% before.

Brazil’s Inflation Unexpectedly Slows as Recession Bites

Brazilian inflation unexpectedly slowed last month, beating forecasts from all analysts surveyed by Bloomberg, as food prices rose less than in the previous month amid a deepening recession.The benchmark IPCA inflation index moderated to 0.96 percent in December from 1.01 percent in November, the national statistics agency said Friday. That compares to the median 1.05 percent estimate from economists surveyed by Bloomberg.

“It’s good news in the near-term, but not something that shows clearly that core prices will be trending down,” Carlos Kawall, chief economist at Banco Safra, said about slowing inflation. “The fact that it came mostly from food prices doesn’t show that we can celebrate this.”

Brazil missed its 2015 target as annual inflation accelerated to 10.67 percent, the fastest for a full year since 2002 and more than double the midpoint of the official target range of 2.5 percent to 6.5 percent. As a result, central bank President Alexandre Tombini had to publish an open letter to the government explaining why he fell short.

Inflation isn’t expected to fall within range this year either, even as the deepening recession and higher borrowing costs chip away at Brazilians’ purchasing power. Leading economists forecast policy makers will redouble efforts to contain consumer prices by embarking on a new round of monetary policy tightening as early as this month.

Traders agree, as swap rates on the contract due in April 2016 rose 2 basis points to 14.66 percent on Friday. The real strengthened 0.5 percent to 4.0248 per U.S. dollar amid improved appetite for emerging-market assets. It dropped 33 percent last year, the worst performer among all 31 major currencies tracked by Bloomberg after the Argentine peso.

The real’s depreciation fueled inflation last year, as did the rising price of government-regulated items, Tombini wrote in his open letter to Finance Minister Nelson Barbosa. He reiterated his commitment to reach the 4.5 percent target in 2017, while Barbosa said in a statement that the government would contribute with fiscal policy and measures designed to boost productivity.

“No matter what happens with other policies, the central bank will adopt the measures needed to meet the target,” Tombini wrote.

Banco Safra’s Kawall expects a 150 basis-point tightening cycle this year, starting in January. Higher interest rates would be a bitter medicine for an economy headed to a deep two-year recession, forecast to be the worst since at least 1901. Fearing more job losses, members of President Dilma Rousseff’s Workers’ Party have publicly opposed additional increases to borrowing costs. December data strengthens the case for holding off, according to Enestor dos Santos, principal economist at BBVA.

“We should be more patient and wait for more data, but in my view it takes some pressure off the central bank,” Dos Santos said. “Inflation peaked in December and it will start to decline from January. I think this would not be the best moment for the central bank to tighten monetary policy.”

Deeper Recession

The central bank has held the Selic rate at a nine-year high even as Brazil’s recession deepened. The slump contributed to slower price increases for food and beverages as well as housing. The biggest single contributor to inflation in the month was the price of airfare, a volatile component that rose 37.07 percent.

A rate increase at the January meeting of the monetary policy committee known as Copom isn’t a foregone conclusion, with banks including BBVA and Banco Fibra expecting no change. Higher borrowing costs would hurt investment more than contain inflation, and Brazil should instead consider raising its inflation target, Workers’ Party President Rui Falcao said in a Dec. 28 interview.

“Any dovish decisions in the next Copom meetings will spur market suspicion that the central bank is facing greater political interference, even if technical reasons for a more moderate approach exist,” Chris Garman, managing director at political consultancy Eurasia Group, wrote in a note before the release of the data.

Central Bank in Brazil Forcasts 2016 Inflation Above Target Ceiling

While there was a consensus among financial analysts that consumer inflation in Brazil would top ten percent this year, the latest report by the Central Bank (CB) shows that analysts’ forecasts for 2016 inflation are also above the target limit of 6.5 percent. According to financial institutions surveyed by the CB for its Focus Report, inflation in 2016 is likely to reach 6.64 percent.The Focus Report, released by the Central Bank on Friday shows that forecasts for the 2015 inflation increased for the 10th consecutive time, going from 10.04 percent to 10.33 percent. Now, according to the BC inflation is only expected to fall within the target range in 2017.

This is the first time analysts have forecast inflation above the government target for 2016. If analysts’ forecasts are confirmed for this year and next year, it will be the first time official inflation is registered above the target ceiling for two consecutive years since 2002-2003.

According to the government’s system the center of inflation target is 4.5 percent, with a two percent tolerance in each direction, so that consumer inflation falling anywhere between 2.5 percent and 6.5 percent is considered within the target.

Consumer inflation is one of the indexes taken into consideration by the CB’s Monetary Policy Committee (COPOM), when deciding the benchmark interest rate (SELIC). According to financial analysts surveyed by the CB for the Focus Report, the SELIC which has been increased for the past seven consecutive meetings, is likely to remain stable during the upcoming Committee meeting this week, at 14.25 percent. This will be the last meeting of the COPOM this year.

Other indexes, like the IPCA (Consumer Price Index) in Brazil, rose by 0.82 percent in October, and according to the IBGE (Brazilian Statistics Bureau) it the highest inflation for the month since 2002. In this index the inflation rate now accumulates an increase of 8.52 percent for the first ten months of the year, the highest for the period since 1996.