IPCA: Brazil’s inflation ends the year up 10.06%; sharpest increase since 2015

RIO DE JANEIRO, BRAZIL – The IPCA, the primary metric of Brazilian inflation, closed the year at a high of 10.06%. Prices should rise less in 2022, but weak economic activity remains a concern.

The Consumer Price Index (IPCA), the primary metric of Brazilian inflation, ended 2021 with a high of 0.73% in December, reinforcing the deceleration trend in price increases.

In the year, the IPCA ended with an accumulated high of 10.06% in 12 months, according to the IBGE.

The index in December was below that measured in November, when the IPCA rose 0.95%, already below projections, suggesting that inflation may have reached a turning point.

Despite the slowdown at the 2021 deadline, this is the worst annual result for inflation since 2015, when the IPCA closed at 10.67%.

The IPCA of 2021 also surpassed that of 2003, which stood at 9.30%, one of the highest since the creation of the Real Plan in 1994 and the stabilization of the currency that would come in the following years.

Brazil’s prices rose sharply amid a rising dollar, rising fuel prices on the international market, a water crisis that impacted electricity, and rising food prices since 2020.

The supply shock worldwide in the face of the covid-19 pandemic, such as the lack of industry inputs, also contributed negatively to the increase in Brazilian inflation in recent years.

The expectation is that, with the world entering the third year of the pandemic, the situation of global chains will stabilize.

According to market projections, prices should rise less in 2022. The estimate so far is that the IPCA will fall by half in 2022, closing the year at 5.03%, according to the median of analysts heard in the latest Focus bulletin, released on Monday, 10.

But one concern is that the slowdown in inflation is accompanied by weak economic activity and high-interest rates.

The Central Bank has promoted successive increases in the Selic rate to contain inflation. The latest addition in the Selic rate was from 7.75% to 9.25% per year on December 8, after the interest rate began 2021 at a historic low of 2%.

In the latest Focus, economists also revised to 11.75% the Selic estimate for 2022 and the Brazilian gross domestic product (GDP) growth to 0.28% (a year ago, analysts projected the Brazilian GDP to grow 2.5% in 2022).

Brazil is not alone in seeing a sharp rise in inflation. The whole world is confronted with the phenomenon.

With consumer prices rising by 5.7%, for example, inflation in the USA reached its highest level in 39 years