Brazil government raises 2021 inflation forecast to 4.4%

FILE PHOTO: A costumer buys meat at a supermarket in Rio de Janeiro, Brazil May 10, 2019. REUTERS/Pilar Olivares

BRASILIA (Reuters) - Brazil’s economy ministry raised its inflation outlook for this year to 4.4% on Wednesday, the same day the central bank is widely expected to raise interest rates for the first time in six years to combat the strong buildup in price pressures.

That is up sharply from the ministry’s previous forecast of 3.2% in November and well above the central bank’s year-end target of 3.75%. It is lower, however, than what many economists are projecting.

In a presentation covering the broad macroeconomic outlook, the ministry said food prices have continued to put upward pressure on overall inflation, even though the pace of the increase has cooled early this year.

The ministry kept its 2021 and 2022 economic growth forecasts at 3.2% and 2.5%, respectively, noting that indicators in January and February suggest the economy continues to recover.

But it warned that uncertainty surrounding Brazil’s economic fortunes this year remains extremely high, and forecast that the economy will contract 0.35% in the first quarter.

“The upsurge in the pandemic and increase in lockdown restrictions have raised uncertainty levels surrounding this year’s GDP forecast,” the ministry said, also noting that the global economic recovery is a potential upside risk to the outlook.

Reporting by Jamie McGeever and Isabel Versiani; Editing by Andrew Heavens and Jonathan Oatis