Brazil makes upward revision to govt inflation estimates

The Brazilian government has made an upward revision to its inflation estimate for this year and next, underlining one of the main concerns of economic agents, which is persistent price pressures and the impacts on capex plans. 

The government now forecasts that inflation will end this year at 7.90%, up from its previous estimate of 6.55%, while for 2023 it sees inflation at 3.6%, above the 3.25% previously projected, according to the economic policy secretariat, which is part of the economy ministry.

The main drivers of inflation at present are food, fuel and service sector prices, according to the government. 

The persistent inflation also suggests that the country's Selic base interest rate, currently at 12.75%, is likely to remain at a high level for a prolonged period, which will result in greater financing costs for firms. 

As a result of inflation, companies in the infrastructure sector are trying to renegotiate contracts and prices with suppliers. 

"The company has been seeking adaptation in the contract modalities, mainly in readjustment formats and supplies of inputs in order to mitigate these costs," João Francisco Bittencourt Junior, president of local construction firm Copa Construção, told BNamericas.

However, some areas of the infrastructure sector, such as highways, have faced price increases for raw materials that far outstrip inflation, which could have more drastic effects. 

"The sharp and extraordinary rise in prices may make some [highways] tenders unfeasible, as input values included in the original studies for concessions have quickly become outdated," Marco Aurélio Barcelos, president of Brazilian highway concessionaire association ABCR, told BNamericas.

Barcelos says that the price of petroleum asphalt cement, used to make asphalt, has jumped 80% in the last 18 months, while inflation according to the official IPCA index was only 16%.

In the mining sector, companies with ongoing projects and approved capex plans are also looking closely at the price rises. 

"Current global inflation is well documented; however, the company has an embedded culture of continuous optimization and business improvement throughout the organization as part of a plan to offset these effects," mining company Horizonte Minerals, which this week began construction of a ferronickel mine in northern Pará state, said in a statement. 

"This work is designed to allow for early optimization in the engineering process and identification of cost-saving initiatives, a critical process in the current macro environment, and it has yielded positive results to date," it added.