IPCA: market is already working with inflation within the 2023 target – 07/11/2023 – Market

The 0.08% deflation of the IPCA (Ample National Consumer Price Index) in June means that the market is already starting to predict the possibility of official inflation returning to end the year within the target —the center of the target for the year is 3.25%, with a tolerance band of 1.5 percentage points up or down. That is, the indicator can vary from 1.75% (target floor) to 4.75% (target ceiling).

In the accumulated of the 12 months ended in June, inflation is at 3.16%, with an acceleration expected for the second semester.

In the last two years, inflation was above the target: in 2022, the rise in prices measured by the IPCA ended the year with an accumulated gain of 5.79%, against the target of 3.5%; in 2021, it was 10.06%, against the target of 3.75%.

Chief economist at MB Associados, Sérgio Vale adjusted the inflation measured by the IPCA in 2023 from 4.9% to 4.7% after the data released by the IBGE (Brazilian Institute of Geography and Statistics) this Tuesday. The estimate corresponds to a monthly increase of around 0.3% in inflation between July and December.

“We have a very high chance of inflation ending the year below the ceiling of the target. We are moving towards that”, says Vale.

The record agricultural harvest close to 300 million tons in the year should help to reduce the pressure on food prices, says the chief economist at MB Associados.

Food inflation, currently running at around 4.6%, should end the year at around 2.2%, predicts Vale.

“The drop in food inflation was only wholesale for a long time, and now it is starting to arrive with more intensity at retail”, says the specialist.

He adds that, by all indications, fuel prices should also remain relatively well-behaved in the second half of the year, and that, with the exception of agribusiness, the rest of the economy continues at a still weak pace, factors that should contribute to inflation. within the target for the year.

Alex Agostini, chief economist at Austing Rating, adjusted the projection for the 2023 IPCA from 4.77% to 4.70%, in view of a slightly more intense deflation than expected – the house worked with a drop of 0, 02% in June.

“Under the conditions that we have of an exchange rate remaining quite moderate there, around R$ 4.80, the prices of commodities falling, it is possible that the Central Bank will be able to meet the ceiling target this year”, says Agostini .

“We still envision a scenario of low inflation in the short term, as wholesale deflation and fuel price cuts reduce retail prices, which should continue until the end of the year, as the effects of the restrictive monetary policy slow down activity economy, leading to a scenario of moderation in inflation in the second half”, says Nicolas Borsoi, chief economist at Nova Futura Investimentos, who projects inflation ending the year at 4.69%.

The chief economist at Nova Futura also says that the rise in inflation in the 12 months through December is largely due to the comparative effect with the same period last year and less to the current behavior of inflationary dynamics.

He recalls that, in the second half of 2022, prices had a sharp drop due to fuel exemption measures adopted by the Bolsonaro government. Therefore, as the period of comparison ceases to be considered, inflation starts to increase, says Borsoi.

“In the second half of 2022, the average IPCA was 0.05% per month, mainly due to the exemptions carried out by the Bolsonaro government. In the second half of 2023, the average IPCA, according to our projections, will be 0.29% per month, which is not high inflation”, says Nova Futura’s chief economist.

“Even with the assessment that the qualitative opening in services [do IPCA de junho] was a little worse than expected, we understand that it is still not enough to change our assessment of the deceleration of cores and services, which should end the year at around 5% and with intensification in the second half”, says Andréa Angelo, strategist Warren Rena’s inflation index.

The specialist states that she sees the possibility of deflation for the July IPCA of -0.01%, with inflation returning to positive at 0.41% in August. For the year 2023, Warren Rena’s projection for the IPCA is 4.75%, at the ceiling of the target.

The strategist recognizes that the cooling speed of prices is below the projected, which, in her assessment, may reinforce the arguments of the most cautious wing of the Central Bank (Central Bank) in line with an initial reduction of 0.25 points at the meeting of August of the Copom (Monetary Policy Committee).

For analysts interviewed by Sheetalthough the IPCA result for June released this Tuesday is positive, service inflation, which rose 6.2% in June, continues to pressure prices, which reinforces the bet that the Central Bank will cut interest rates by 0 .25 percentage points, and not by 0.50 in August.