When Brazil’s central bank chief Ilan Goldfajn had to publicly justify himself on Wednesday for missing the official 2017 inflation target, it looked more like a victory lap than a confession.
The reason is that after seven straight years of consumer prices near or above the range’s upper bound, inflation came in below the floor of the target range for the first time ever. And that was a huge relief to Brazilians, whose purchasing power recovered after a brutal recession slashed wages and boosted unemployment.
Official data on Wednesday showed annual inflation ended 2017 at 2.95%, just below the 3% floor, obliging Goldfajn to publish an open letter to Finance Minister Henrique Meirelles explaining the shortfall.
“It’s ironic that the central bank has to write a letter explaining why it missed the target despite having done a very good job,” Carlos Kawall, chief economist at Banco Safra, said in an interview. “There was no error at all. They got it right.”
After taking office in 2016 Goldfajn first held the benchmark interest rate for two consecutive sessions before cutting it to a record low in an effort to help pull the economy out of a recession that had eroded household and corporate demand.
Asked whether the central bank could have simply rounded up the year-end figure to meet the target and avoid a public explanation, the MIT-trained economist was categorical.
“We could have, others may have, but not us,” a visibly pleased Goldfajn told reporters. “We didn’t want to lose the opportunity to give this explanation.”
And explain they did. Twelve pages of graphs, charts and central bank jargon to break down prices, interest rates and their trends. The upshot was that a collapse in food prices is mostly to blame for having undershot the target range last year.
The detailed explanations are required by law every time consumer prices don’t end a calendar year within the target range, which was between 3% and 6% last year. President Michel Temer told his economic team that inflation below that range was cause for celebration, while Meirelles yesterday highlighted the benefits for purchasing power.
Only two years ago Goldfajn’s predecessor, Alexandre Tombini, had to explain how a surge in government-administered prices and a plunge in the currency had lifted inflation above the upper bound of the target range to the highest year-end level since 2002.
“It’s a letter that Goldfajn was likely very happy to write,” Alberto Ramos, chief Latin America economist at Goldman Sachs, said in an interview.
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