Food will ease your pocket this year, but the situation will be different in 2024

Food, one of the main items in Brazilians’ consumption basket, is providing relief for their pockets this year. After three consecutive years of significant increases – 14.09% in 2020, 7.94% in 2021 and 11.64% in 2022 – prices are showing an accommodation, according to data released this Friday (10) by the Brazilian Institute of Geography and Statistics (IBGE).

The drop was 0.7% between January and October. There was a sequence of four months of consecutive price reductions, between June and September. Year-to-date, the decline in prices is driven by oils and fats (-17.51%), tubers, roots and vegetables (-14.54%), meat (-11.08%), and poultry and eggs ( -8.06%).

Several factors contributed to this scenario, including the exceptional agricultural harvest of 2022/23, which recorded a harvest of 321.4 million tons, according to the National Supply Company (Conab), and the stability in the prices of international agricultural commodities.

Economist Alexandre Maluf, from XP Investimentos, highlights that meat experienced eight consecutive months of falling prices until September. This reduction is not related to President Luiz Inácio Lula da Silva’s (PT) promises to reduce prices, but rather to a favorable slaughter cycle and cost reduction, such as feed, mainly composed of soybeans and corn.

Fall in food prices is unlikely to continue in the coming months

However, the expectation is that the drop in food prices will not continue in the coming months. The forecast is for a rise in food prices throughout 2024, estimated at 6% by inflation strategist Andréa Angelo, from Warren Rena.

The expectation is that the peak will occur in November, reaching 1.2%, something not observed since July 2022. In addition to climate issues, the proximity of the end of year festivities, when the consumption of meat and industrially processed foods increases , should also influence.

The climate phenomenon El Niño is cited as one of the main reasons for the rise in food prices. This phenomenon, characterized by the warming of the waters of the Central Pacific, causes more rain in the South/Southeast and less in the North/Northeast. Although it has been moderate in intensity so far, there is a 75% to 85% chance that it will become stronger, peaking in the summer, according to the latest report from the United States Oceanic and Atmospheric Administration (NOAA).

El Niño should contribute to inflation

The trend is for a resurgence in the climate phenomenon, starting next month, according to Maluf, from XP. The World Meteorological Organization predicts that the El Niño last at least until April 2024. The economists interviewed by People’s Gazette believe that the impacts will be more noticeable in food in nature than in grains.

Rafael Cortez, economist at Suno Research, says that even if the El Niño negatively affects some relevant crops, such as corn and wheat, the supply of various agricultural products remains high, well above demand.

Conab surveys indicate that grain supply should remain high, with an estimate of 316.7 million tons, 1.5% below the 2022/23 cycle. This condition can contribute to a drop in prices on international markets and serve as a counterweight to some items that are more susceptible to intense climate change. “A recovery of the harvest in Argentina, one of the world’s main grain producers, is also likely”, he highlights.