Lower growth does not imply lower inflation

In the 3Q14 Inflation Report released today, the Brazilian Central Bank (BCB) reduced its forecasts for GDP growth in 2014, from 1.6% to 0.7% (consensus: 0.3%), and added that the economy will expand by only 1.2% in 2Q15. However, the monetary authority does not expect this sharper economic deceleration to take inflation down. Its inflation forecasts were left broadly unchanged, around 6.0% YoY at the end of both 2014 and 2015 and close to 5.0% in the middle of 2016. The tone and the wording of the document released today continue to support the view that the SELIC rate will continue at 11.0% for some time.

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