Inflation: IPCA-15 of May is up 0.51%, says IBGE – 05/25/2023 – Market

Inflation measured by the IPCA-15 (Extended National Consumer Price Index 15) slowed down to 0.51% in May, after rising 0.57% in April, reported this Thursday (25) the IBGE (Brazilian Institute of Geography and Statistics).

At the median, analysts consulted by the Bloomberg agency projected monthly growth of 0.64% this month.

With the result of May, the index reached 4.07% in the accumulated 12 months, according to the IBGE. The accumulated was 4.16% until April.

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, the data for May is not yet closed. It will be known on the 7th of June.

The IPCA-15, due to the fact that it was released earlier, signals a trend for prices. Its variation is calculated between the second half of the previous month and the first half of the data reference month – in this case, April and May.

The center of the inflation target pursued by the BC (Central Bank) for the IPCA is 3.25% in 2023. The tolerance interval is 1.5 percentage points more (4.75%) or less (1. 75%).

The increase predicted by the financial market for the IPCA is 5.80% in the accumulated of 2023, according to the Focus bulletin published by BC on Monday (22). If the result is confirmed, this will be the third consecutive year of exceeding the goal.

Analysts expect inflation to gain strength in the second half, after losing pace in the first half of 2023. Part of this projection is associated with the effect of the basis for comparison.

On the eve of the 2022 elections, the prices of products such as gasoline were artificially reduced by the tax cut promoted by the Jair Bolsonaro (PL) government. This effect should come out of the calculation of the 12 months until the end of the year.

From June to July, gasoline is also expected to be pressured by the new ICMS rate (state tax) and the full return of federal taxes.

The BC has been maintaining the basic interest rate (Selic) at 13.75% per year on the grounds that it seeks to contain inflation. By cooling the demand for goods and services, the measure tries to curb prices and anchor expectations for the IPCA.

The foreseen side effect is the loss of breath of economic activity, because the cost of credit is higher for companies and consumers.

The projection of a slowdown in the economy in the first year of the Luiz Inácio Lula da Silva (PT) government is worrying the president and allies, who have been criticizing the president of the BC, Roberto Campos Neto, due to the level of interest rates.