Food inflation: one year above 10% in the IPCA-15 – 02/24/2023 – Market

The inflation accumulated by the group food and beverages in the IPCA-15 (National Consumer Price Index-15) completed a year above 10% in Brazil, according to data released this Friday (24) by the IBGE (Brazilian Institute of Geography and Statistics).

From January to February 2023, the accumulated increase in 12 months even continued on a decelerating path, changing from 11.50% to 10.61%. The loss of momentum, however, was not enough to return the rate to single-digit levels.

Food and beverage inflation has been above 10% in the IPCA-15 since March 2022. That month, by reaching 10.77%, the group left behind three consecutive months of variation around 8%, a period in which the indicator was rehearsing a truce.

According to economists, the high cost of food can be associated with a combination of factors. The record of climate shocks last year and the consequences of the War in Ukraine are part of this list.

Heated demand for stimulus measures on the eve of the elections in Brazil and problems in the production chains are also mentioned.

Throughout 2023, economists say, the perspective is that food and beverage inflation will return to single digits in the accumulated. The recomposition of supply with better crop conditions is pointed out as one of the explanations for this more optimistic projection.

Even with the probable slowdown, food prices should remain at a high level, ponders economist Eduardo Vilarim, from Banco Original.

“One thing is the price level and the other is the variation. We are saying that the high will slow down, but it is still high”, he says.

Food inflation punishes the poor population above all, because the purchase of food absorbs, proportionally, a bigger slice of the budget of these families.

Sergio Vale, chief economist at the consultancy MB Associados, also predicts a slowdown in food and beverages to single digits in the coming months.

According to Vale, this movement should bring some relief to the poor population in 2023.

Meanwhile, the middle class tends to be affected, as of March, by the probable return of federal taxes on fuel, assesses the economist.

“We have a perspective of a superharvest this year and of an important deceleration of food, if this consolidates”, he says.

“Last year, inflation made the poor population more complicated. This year, it should bring more complications to the middle class”, he adds.

The official inflation index in Brazil is the IPCA (National Consumer Price Index), also released by the IBGE. As the IPCA variation is calculated over the reference month, February data are not yet finalized. They will be known on March 10th.

The IPCA-15, due to the fact that it was released earlier, signals a trend for prices. Its variation includes the second half of the previous month and the first half of the reference month of the disclosure. In this case, price collection took place from January 13 to February 10.

IPCA-15 is higher than expected

Pressured by readjustments in the area of ​​education, the IPCA-15 accelerated to 0.76% this month. The rate came after advancing 0.55% in January, according to data released by the IBGE this Friday.

The new result was above market estimates. On the median, analysts consulted by the Bloomberg agency projected a high of 0.72% this month.

In the accumulated of 12 months, the IPCA-15 registered inflation of 5.63% until February. In this cut, there was a loss of momentum, since the rate was at 5.87% until the previous month.

Of the 9 groups of products and services surveyed, 8 had high prices in February. The biggest variation and the greatest impact came from the education segment.

The group rose 6.41% in the month. It is the highest rate for February since 2004 (6.89%). There was an influence of 0.36 percentage points on the index.

In education, the main pressure came from regular courses (7.64%), which rose as a result of readjustments usually practiced at the beginning of the school year, said the IBGE.

In 12 months, the IPCA-15 (5.63%) is above the inflation target pursued by the BC (Central Bank) for the IPCA in 2023. The center of the target is 3.25%, with a tolerance interval of 1 .5 percentage points up (4.75%) or down (1.75%).

The increase predicted by the financial market for the IPCA is 5.89% in the accumulated of 2023, according to the Focus bulletin published on Wednesday (22) by the BC. If the result is confirmed, this will be the third consecutive year of exceeding the goal.

The BC has been maintaining the basic interest rate at 13.75% per year. The Selic at a high level seeks to cool the demand for goods and services, in an attempt to contain prices and anchor inflation expectations.

The expected side effect is the loss of momentum in economic activity, because the cost of credit is higher for companies and consumers.

In recent weeks, President Luiz Inácio Lula da Silva (PT) has piled up a series of criticisms of the BC’s actions and the institution’s president, Roberto Campos Neto. Lula stated that the Selic level is a “shame”, called the BC’s autonomy “nonsense” and referred to Campos Neto as “that citizen”.

The PT also defended a more flexible inflation target, hoping to make room for cutting interest rates, despite part of economists considering that the concrete effect would be the opposite, due to increasing uncertainties.

Scenario for 2023

Banco Original forecasts IPCA of 0.78% in February with the pressure of education readjustments. Thus, the index would move towards 6% in the accumulated result for the year until December.

In March, the IPCA tends to rise by 0.61%, according to the Original. The forecast already takes into account the possible effect of the return of the collection of federal taxes on fuel, according to Eduardo Vilarim, bank economist.

He assesses that service inflation tends to cool down slowly throughout the year. “It is an inflation that takes time to slow down”, says Vilarim.

In the view of Economists at Terra Investimentos, the IPCA-15 data are worrisome because they reinforce the “resilience framework for current inflation”.

The institution considers that an eventual resumption of the debate on changing the targets would be a source of pressure on expectations. Terra Investimentos forecast an IPCA of 0.83% in February and 6.6% for the year.

For Itaú Unibanco, this month’s IPCA-15 reading came “close to expectations and does not indicate bias for the closed IPCA for the month or for the year 2023”.

“Course readjustments pressured today’s reading [sexta]as expected “, indicated a report by economists at the bank. Itaú projects a rise of 6.3% for the IPCA in 2023 and 4.2% in 2024.