Brazil Inflation Index in May Shows Highest Since 2008

By Lise Alves, Senior Contributing Reporter

SÃO PAULO, BRAZIL – The IPCA (National Consumer Price Index) in Brazil rose by 0.78 percent in May, according to the IBGE (Brazilian Statistics Bureau) the highest inflation for the month of May since 2008. The rate is 0.17 percent higher than April’s inflation which registered an increase of 0.61 percent.

The inflation rate for the first five months of the year now accumulates an increase of 4.05 percent, below the 5.34 percent registered during the first five months of 2015. For the twelve months ending in May, the inflation index is at 9.32 percent, well above the inflation target ceiling established by Brazil’s Central Bank, of 6.5 percent per year.

The water and sewage services, in the housing sector, registered the highest increase in inflation last month, rising by 10.37 percent in the month of May. The surge of inflation in that segment, according to the IBGE, was due to the end of bonuses given to São Paulo city residents who decreased their water consumption in addition to a 8.40 percent increase in water tariffs.

Also in the housing sector, electricity bills increased by 2.28 percent due to the tariff increases in metropolitan areas such as Salvador (+11.25 percent) and Recife (+11.22 percent). In all, the housing sector registered an inflation increase of 1.79 percent, contributing 0.27 percent to the overall index.

The health and personal care sector registered the second largest increase in inflation last month, rising by 1.62 percent and contributing 0.18 percent to the overall index. The highlight of the sector was the increase of prescription drug prices in May, which rose by 3.10 percent after increasing by 6.26 percent in April.

Inflation in the food and beverage sector registered an increase of 0.78 percent with potato and onion prices rising by more than ten percent during May. On the other hand the price of carrots decreased by 23.08 percent during the month. Other items that helped limit inflation in May were the decline in prices of ethanol (-9.54 percent) and gasoline (-0.85 percent), air travel (-8.22 percent) and cooking gas (-0.74 percent).

In regards to inflation rates in Brazil’s largest metropolitan areas, Fortaleza registered the greatest increase in the rate, rising by 0.99 percent, followed by São Paulo, with an increase of 0.93 percent. The increase in São Paulo, however, was more significant to the overall index, since the metropolitan area, contributing 30.67 percent to the index, while Fortaleza only contributes 3.49 percent. The metropolitan area of Goiania registered the lowest inflation increase, of 0.28 percent.

The latest Focus Report, a weekly survey conducted by the Central Bank with forecasts from more than one hundred financial institutions, showed that economists forecast the IPCA index for 2016 at 7.12 percent, well above the inflation target ceiling established by Brazil’s Central Bank of 6.5 percent. For 2017 economists believe that inflation will start to ease, with the index falling back to 5.50 percent for the year, within the accepted Central Bank parameters.