XP sees IPCA at 7.4% this year and revises GDP from zero to 0.8%; economy expected to grow less in 2023 with tighter monetary policy

With the worsening of the inflationary situation, XP revised its projections of indicators for this year and 2023. The house’s forecast for the consumer price index (IPCA) at the end of 2022 went from 7% to 7.4%. XP recalls that the March IPCA, by itself, was 0.3 percentage point above market expectations. The main revision of the house was in the inflation of services for 2022, which went from 6.2% to 7.4%.

“Cost pass-throughs are reaching the final consumer more fully, a sign that inflation may be becoming more inertial”, explains Caio Megale, chief economist at XP. In other words, the rise in prices in the segment is behaving like a “snowball”. Industrial goods inflation was also revised from 7.3% to 7.5%.

“We kept our projections unchanged for the other groups: food, industrialized products and administered prices. These groups tend to be positively affected by the recent accommodation of commodity prices measured in reais”, says the XP team. For 2023, the IPCA projection was maintained at 4%, still above the Central Bank’s target.

On the other hand, the forecast for the Gross Domestic Product (GDP) for 2022 had a small improvement. After months of projecting stagnation, XP now sees growth of 0.8% for the Brazilian economy this year. In the assessment of the analysis team, GDP is showing greater firmness in the first half of this year, after the recovery of the labor market at the end of 2021, the reopening of activities and the advance of vaccination.

XP believes calculates that the mass of disposable income of Brazilians should grow 1.5% in 2022, and the availability of resources should be maintained in the second half of the year with government measures, such as Auxílio Brasil and release of FGTS withdrawals.

“Our 2022 GDP change rate projection was null four and a half months ago and, over the last two months, with some slightly more favorable signs, we started to work with an upward bias”, explains economist Rodolfo Margato. He highlights the good performance of retail in the first two months of the year, to the detriment of the weak performance of the services sector. “The omicron variant seems to have impacted the numbers, but the service sector still seems to be the protagonist to explain a moderate growth of the economy in the first half of this year”, he explains.

For 2023, however, XP revised its GDP forecasts downwards, from growth of 1.2% to 0.5%. The analysis team believes that inflation should only converge to the target in 2024, considering the supply shock generated by the pandemic and the war in Ukraine. A tighter monetary adjustment scenario tends to slow down investments and credit concessions at a time of growth in household indebtedness. The global economy as a whole is expected to slow down next year, with signs of monetary tightening in the United States and other countries.

Finally, XP believes that the Monetary Policy Committee (Copom) will have to adjust its flight plan and has revised its projection for the Selic terminal. Earlier, the analysis team believed that interest rates would rise as much as 12.75% at the May meeting. Now, it foresees a new increase, in June, to 13.75% per year. “That way the Central Bank will have more fat to go through the election period. And if up front, the movement proves to be exaggerated, you can make adjustments”, concludes Megale.

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