El Niño: impact on food inflation at the end of 2023 – 08/10/2023 – Market

Food inflation has lost steam in Brazil, but could come under pressure from the end of this year due to a weather phenomenon, say economists. The risk comes from El Niño, which is known to affect the distribution of rainfall in the territory.

For now, the scenario does not worry analysts so much, but they estimate that the situation may impact prices that are more sensitive to climate change, with a chance of preventing a deflation (fall) of food in 2023.

At first, the list of items most susceptible to this pressure is made up of fruit and vegetable products – vegetables, greens and fruits.

The last time food at home closed a year with deflation in Brazil was in 2017 (-4.85%), according to data from the IPCA (Broad National Consumer Price Index).

“What El Niño can do with food is to prevent deflation this year”, says Sergio Vale, chief economist at MB Associados consultancy.

In the accumulated 12 months through June, food at home slowed down the increase in the IPCA to 2.88% – it was 16.71% in the same period last year.

For the time being, Vale forecasts an advance close to 2% by December 2023, although it does not completely rule out the possibility of deflation.

“There is still a chance of this happening. There is a strong drop in wholesale prices that will continue to be passed on to the consumer.”

El Niño is characterized by the abnormal heating of the Pacific Ocean in the equator region, raising global temperatures. Scientists from the United States declared the beginning of the phenomenon in early June.

In Brazil, the event increases the chance of large volumes of rain in the South and increases the risk of drier periods in the Northeast and North, according to Inmet (National Institute of Meteorology).

In a report, Itaú Unibanco economists Luciana Rabelo, Julia Passabom and Natalia Cotarelli say that the new El Niño, despite being relevant, should not equal the event registered in 2015 and 2016. Thus, they predict more moderate effects on crops and food prices this time.

In the case of inflation, economists assess that the impacts tend to be more concentrated at the end of the year in fruit and vegetable items, with production more located in the South and Southeast, which may receive more rain.

According to Itaú, El Niño could generate an increase of 0.10 percentage points over the 2023 IPCA. effect of the weather phenomenon. For food at home, the outlook is for an increase of 0.6%.

“El Niño would be a concern towards the end of the year, if there is an increase in rainfall in the South and Southeast. Fruit and vegetables, such as fruits, potatoes and tomatoes, are very volatile”, says Rabelo.

The economist adds that, as these prices tend to fluctuate a lot, it is possible that the eventual high in the fourth quarter will be “returned” with a low later.

“We have the formation of an El Niño for the 2023-2024 harvest. That is a fact. There is no denying it. But this El Niño is far from being, in our view, of strong intensity”, points out agrometeorologist Marco Antonio dos Santos , from Rural Clima.

Santos also mentions the prices of fruit and vegetables as the most susceptible to the impacts of the climate phenomenon. “If you go 15 days without harvesting vegetables, the following week there is already an effect on the housewife’s daily life.”

Economist Adriano Valladão, from Santander Brasil, says that El Niño brings more risks to food inflation in the period from the middle to the end of the fourth quarter, with possible pressure on in natura items.

“The temperatures of the Pacific Ocean already indicate that we are going to have an El Niño. The doubt now is the intensity”, says Valladão.

The forecasts of Santander Brasil, revised this month, are for a rise of 4.9% for the IPCA as a whole in 2023 and a deflation (fall) of 0.5% for food at home.