Inflationary Pressures Mount in Brazil’s Construction Industry

Brazil’s construction sector is experiencing a concerning rise in inflation, with the latest figures indicating a significant shift.

The Construction Industry Index from the Getúlio Vargas Foundation (FGV) reported an annual inflation rate of 5.23% as of September, up from 3.21% a year ago.

The October report will be released on Monday, October 28. This inflationary trend had been somewhat softened by stable prices for construction materials, but recent analyses suggest this stability may be ending.

Analysts at Itaú BBA, led by Daniel Gasparete, have noted a gradual increase in material costs that could significantly impact companies focused on low-income housing projects, such as those under the Minha Casa, Minha Vida (MCMV) program.

The National Construction Cost Index (INCC) tracks inflation in this sector and recorded a monthly increase of 0.61% in September. This represents a slight decrease from the 0.64% increase recorded in August.

Cement Price Increases in Brazil

In São Paulo, the increase was 0.64%, while Porto Alegre saw a steeper rise of 1.23%. While these increases seem modest compared to historical data since the pandemic, they signal potential changes.

In 2021, the INCC soared beyond 17%, largely due to supply chain disruptions affecting base material prices. Industry insiders like Marcos Vinicius of Habras report that cement-related products have surged nearly 16% this year due to two price hikes.

Despite a significant idle capacity of 32% in Brazil‘s cement industry, increased sales could lead to further price adjustments. The National Cement Industry Union (Snic) announced a 10.4% year-on-year increase in cement sales for September.

Rising commodity prices, driven by recent Chinese stimulus measures, are also impacting costs. These increases disproportionately affect low-income housing projects due to their reliance on materials rather than labor.

As demand rises and prices remain lower, there is concern that escalating costs could hinder growth in the sector. This sector has been benefiting from recent government incentives and programs.