Brazil: January’s IPCA-15 inflation forecast hits 0.58% and continues gradual deceleration

RIO DE JANEIRO, BRAZIL – The IPCA-15, the Brazilian inflation forecast, rose 0.58% in January, a drop of 0.20 percentage points in relation to December and following the trend of gradual deceleration in prices. The result was released on Wednesday, January 26, by the Brazilian Institute of Geography and Statistics (IBGE).

In the 12-month accumulated, the rise measured by the IPCA-15 was 10.20% – also below the 10.42% observed in the December accumulated index.

The IPCA-15 is seen as a forecast, as it considers prices between mid-December and mid-January before the final index for the month is released.

After closing 2021 with the highest inflation since 2015 and one of the highest since the Real Plan (with IPCA at 10.06% in the year), Brazil has been on a path of gradual deceleration of inflation in recent months.

Market expectations are that the IPCA will close the year around 5%, close to or just above the Central Bank’s target ceiling.

However, internal and external inflationary risks remain on the radar, and the Central Bank should promote new interest rate hikes throughout 2022.

Eight of the nine groups of products and services measured by the IBGE rose in January’s IPCA-15. Among the positive highlights was a drop in some fuel prices and stable electricity prices.

The only group with a decline was Transport (prices fell 0.41%, after a 2.31% hike in December).

In this group, the highlights were the 1.78% drop in gasoline prices (fuels like ethanol and vehicular gas also dropped) and a significant reduction in airline tickets, which were 18.21% cheaper in IBGE’s measurement. New cars, on the other hand, rose 1.90% by mid-January.

Meanwhile, the food and beverage group had a higher increase this month in relation to the previous period (0.97%, against 0.35% in December).

The highest increase this month in the food group came from onions, which rose 17.09%;
After being 50% more expensive in the accumulated total for 2021, ground coffee continues its upward trend and rose 6.50% in January’s IPCA-15; Meat completes the hikes, rising 1.15% in the period.

In the Housing group, the highlights were residential rent, which rose 1.55% and piped gas, up 8.40%. The IBGE points out that the high price of gas is a result, above all, of a price readjustment in São Paulo, in effect since December.

The residential electricity price was stable in the country’s general measurement (0.03%, after 0.96% in December), although it rose in some state capitals.

In 2021, electricity prices rose 21%, and the tendency is for a slowdown this year, but the lack of rainfall and the cost of fuel that fuels the thermoelectric plants remain a risk on the radar.

Among the eight groups surveyed, Clothing led the hikes in the month (up 1.48%, with men’s Clothing up more than 2% and women’s and shoes and accessories, more than 1%). In second came Household Goods (1.40%), which, even amid promotions for the end-of-year celebrations, had appliances and equipment and furniture, rising more than 2%.

2022

This week’s Focus bulletin, released on Monday, the 24th, brought a projection for the IPCA closing 2022 at 5.15% on the analysts’ median. The number brings a new high in relation to previous predictions, closer to 5.0% at the end of the year.

The IPCA variation foreseen so far would be above the Central Bank’s target ceiling – which is 3.5% with a tolerance of 1.5 percentage points, i.e., a ceiling of 5.0%.

Further increases in the introductory interest rate, the Selic, currently at 9.25%, are expected for this year. The Central Bank’s Monetary Policy Committee (Copom) holds its first meeting on February 1 and 2.

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