Haddad sees inflation above 4,5% in June, but expects "positive surprises" with the harvest and exchange rate.
The expected harvest this year and the decline of the dollar against the real, which has already exceeded 6%, are two factors that, according to the government, could slow down inflation.
SAO PAULO (Reuters) - Finance Minister Fernando Haddad said he expects Brazil to have positive inflationary surprises this year, but acknowledged that the accumulated inflation over 12 months should remain above 4,5% until June, as projected by the Central Bank.
In an interview with GloboNews broadcast late Wednesday night, Haddad assessed that the expected harvest for the year and the more stable exchange rate should contribute to controlling inflation, even surprising economists' projections for price increases.
"I believe... that we may have surprises regarding market expectations, as we did with GDP (Gross Domestic Product)," Haddad stated when questioned about inflation.
The expected harvest this year and the decline of the dollar against the real, which has already exceeded 6%, are two factors that, according to the government, could slow down inflation.
"I believe that we can have good news on the inflation front, if the policy is well conducted, and with the harvest, the behavior of the exchange rate," we can have pleasant surprises, the minister reinforced.
At the same time, Haddad stated that inflation in June will "probably" be above 4,5%, as predicted by the Central Bank.
In the minutes of the last meeting of the Monetary Policy Committee (Copom), released on Tuesday, the Central Bank assessed that accumulated inflation over 12 months should remain above the upper limit of the inflation target for the next six months -- in practice, it should stay above 4,5% at least until June.
The Central Bank's ongoing inflation target is 3%, with a tolerance margin of 1,5 percentage points. In December – the most recent data available – accumulated inflation as measured by the IPCA was 4,83%, according to the Brazilian Institute of Geography and Statistics (IBGE).
According to the minister, inflation is expected to remain above the target ceiling until mid-year because there is a "lag" in the response of prices to the Central Bank's interest rate hikes.
Currently, the basic Selic rate is at 13,25% per year, but technically the effect of higher interest rates on prices has a lag of several months.
“But here in Brazil, I believe the response (to inflation) will be faster. I believe there may also be a faster adjustment,” he added, arguing that the interest rate should be a remedy applied by the Central Bank in a “dose that doesn’t kill the patient.”
Income Tax Reform
In the interview, Haddad also reiterated that President Luiz Inácio Lula da Silva's intention is to exempt Brazilians earning up to R$5 from income tax. According to the proposal to be submitted by the government to Congress, starting in January 2026 these workers would no longer have income tax withheld at source.
On the other hand, according to Haddad, Brazilians with incomes exceeding R$50 per month who do not currently have a "compatible" income tax withholding would pay a minimum tax.
Earlier, GloboNews had already released a segment of the interview in which Haddad defended charging a minimum income tax on people earning more than R$5.
According to the minister, the calculation will include income from salaries, but also from other sources, forming a "combo".
“There are things that are exempt, and they will not be taken into consideration. But if a person has an income exceeding R$50 per month, and it gradually increases up to R$100 per month, we will verify if they are paying the minimum tax,” he stated.
