Food inflation to rise above 6% due to drought and fires, says survey

The fires and drought affecting Brazil’s main biomes are already causing food prices to rise, which are expected to close the year with inflation of 6.3%, according to a study by Bradesco released this Thursday (19).

In addition to food, the price of energy is also on an upward trajectory with the activation of the red flag for electricity bills.

“A large part of the effects of the drought have been mapped and incorporated into the scenario, but the return of rain will be important for defining the energy and food situation in the coming months,” says Bradesco’s analysis.

According to the bank’s economists, the prices of fresh foods have risen by more than 10% in the 12 months up to August. In the same period, the price of cereals has soared by almost 20%.

In the case of meat, there has been deflation of 0.4% in the last twelve months, but pressure for increases should lead to inflation in animal protein in 2024 at 5.8%.

For comparison purposes, inflation in food at home calculated by the Brazilian Institute of Geography and Statistics (IBGE) has accumulated an increase of 4.6% in the same period.

And in 2023, there was a fall in the prices of food consumed at home, with deflation of 0.5%.

“In January of this year, our estimate was for a rise of around 4.5% in food prices in 2024, with a downward bias. In addition to the impacts of the drought on several crops, domestic demand proved to be stronger than anticipated and the exchange rate depreciated by around 12%”, points out the study by Bradesco economists Mariana Freitas and Priscila Trigo.

For 2025, the scenario is still one of cooling. According to economists, Conab expects a record grain harvest next year, with an increase of 9.6% compared to the last harvest.

The increase is being driven by soybeans and rice, bringing relief to prices in Brazil next year, provided that regular rainfall returns in October.

In the case of energy, the analysis highlights that it is raining less in the electrical system’s reservoirs, with a substantially lower level than in 2023, mainly in the Southeast, where the country’s largest storage capacity is located.

According to economists at Bradesco, the reservoirs of the National Interconnected System (SIN) are at around 50% of their capacity, with expectations that they will fall to around 40% by the end of the year. This is not a critical level like in 2021, but it has already raised alarms in the government and at Aneel.

“Our scenario contemplates red flag 2 next month, returning to yellow at the end of the year. The estimated impacts on the IPCA are +0.13 pp in the case of red flag 1 and +0.29 pp for red flag 2,” says the document.

*With information from CNN

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