IPCA: what happened to food prices — and why economists’ anguish is another

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After being the protagonist of disinflation in 2023, the Food and beverages group had the greatest weight in prices for the third consecutive month. For experts, the effect is seasonal and the biggest concern is with the services sector. IPCA rises 0.42% in January For the third time, the Food and beverages group had the biggest upward contribution to prices measured by the Broad National Consumer Price Index (IPCA). The January data was released by the Brazilian Institute of Geography and Statistics this Thursday (8). On average, prices rose 0.42%, accumulating 4.51% in the last 12 months. Alone, the group had a weight of 0.29 percentage points in the general index for January, after an increase of 1.38% in the month. The situation is frightening because food made a major contribution to disinflation last year. Despite starting in November and December, there were four consecutive months of decline, between June and September. In 2023, the accumulated increase was 1.03%, the second lowest of all nine IPCA groups. There is also the fact that food increased considerably during the Covid-19 pandemic. In 2022, the group rose 11.64%. When starting from a high comparison base, the falls are also more expressive, and also more representative of the disinflation process. Thus, the Food and beverages group was one of the protagonists in ensuring that the IPCA closed the year 2023 within the inflation target established by the National Monetary Council (CMN). And the improvement in expectations gave the Central Bank peace of mind to begin the cycle of lowering the basic interest rate. But the doubt remains: can the acceleration in food prices reverse the trend and reduce the BC’s decline in the Selic rate? For experts interviewed by g1, the answer is no — at least specifically considering the food situation. There are two points to consider: The price of food suffers from a seasonal effect: in summer, fresh foods have a natural drop in supply, which pushes prices up. El Niño intensified climate variations and created harvest difficulties, causing additional damage to prices. Among the products, carrots (43.85%), potatoes (29.45%), carioca beans (9.70%), rice (6.39%) and fruits (5.07 %) were the IBGE highlights for the month. “Vegetables, legumes, tubers and roots are in smaller supply in the summer. Families do not give up consumption and agriculture cannot produce satisfactorily”, says André Braz, economist at the Brazilian Institute of Economics at Fundação Getulio Vargas (FGV Ibre). “What worries about inflation is when it is very widespread and persistent. In this case, it is concentrated in food groups and is not long-lasting. The challenge of monetary policy does not increase because a product temporarily increases in price”, he continues. The expectation, therefore, is that the arrival of autumn and a relief from El Niño could control fresh food prices in the future. For economist Fábio Romão, from LCA Consultores, it would be very difficult for Food at home, which specifically groups fresh prices, to have a further drop in 2024, as it did in 2023. Last year, the subgroup had deflation of 0.5 %, the first drop since 2017. For this year, Romão’s projection is an increase of 4%, which he considers a moderate gain. “In recent wholesale information, which weighs heavily on commodities and shows prices to agricultural producers, the signs are of a fall. It is the stage prior to the agricultural retail production chain. This decompresses prices after the first quarter”, says the economist. Therefore, the projection for the IPCA in the Focus bulletin has not changed, even with the acceleration of prices in the group. In the latest version of the report, the financial market projected an increase of 3.81% for inflation in 2024. The number is below the accumulated figure seen in January, which means that prices should slow down. Services in focus Analysts’ concern is another: the services sector. Services inflation measured by IBGE shows an accumulated 5.62% in 12 months, still above the IPCA average. The underlying services core, the one that best indicates the sector’s trend and excludes more volatile measures, rose 0.76% in January — the biggest surprise of all the IPCA openings in the experts’ opinion. The services core is one of the main metrics observed by the BC for the continuation of the Selic cut cycle. The basic interest rate went through five consecutive drops, but the Monetary Policy Committee (Copom) made clear its concern about the continuation of the disinflation process. “The job market is hot, and families increase their consumption basket in this situation. The more comfortable you are with your income, the more you travel, go to the beauty salon, eat out”, says André Braz, from FGV Ibre. “In Brazil, even free services have a lot of indexing. This is the case with rent, condominium fees and school fees. They are heavy on the budget and very difficult to reduce during the year.” The intensity of this effect, however, is still uncertain. Following the repercussion of yesterday’s result, economists classified the number of underlying services as a kind of “yellow alert”. For Andrea Damico, chief economist at Armor Capital, the results still do not reverse the Selic’s downward trend, but they raise alerts about the trajectory of prices. Even though it was clear that volatile items influenced the result, it is necessary to observe what the coming months will be like. “We already expected an ugly number for this closure, but it came much worse. It’s an uncomfortable sign, but we maintain the view that there should be some decompression in the coming months. There is still a component of annual adjustments in this data”, commented the specialist. Laiz Carvalho, economist for Brazil at BNP Paribas, indicated that the rise in underlying services had been taking shape since the month’s IPCA-15 results, but will be closely monitored to anticipate the BC’s next steps. “It’s still too early to talk about reversing the slowdown in services. But, from now on, in addition to the full index itself, this is the aspect that everyone will follow to understand the impact of economic activity on inflation, especially the market for work”, says the economist. See the results of the January IPCA groups: Food and beverages: 1.38%; Housing: 0.25%; Household items: 0.22%; Clothing: 0.14%; Transport: -0.65%; Health and personal care: 0.83%; Personal expenses: 0.82%; Education: 0.33%; Communication: -0.08%.

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