Mid-month inflation in May increased by 0.51%, well below expected
05/26/2023
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Food at home pushed IPCA-15 upwards — Foto: Brenno Carvalho/Agência O Globo
Brazil’s mid-month inflation index IPCA-15 May result surprised to the downside. It grew by 0.51%, well below the 0.64% of the Valor Data consensus, and lost momentum for the third consecutive month — in April, it had increased by 0.57%. The number showed a slightly more favorable scenario for inflation, although a data breakdown points to a less favorable picture, as is clear in the figures for cores and services, which are more responsive to the economic cycle.
In 12 months, the IPCA-15 went to 4.07% in May from 4.16% in April, the lowest level since October 2020 on this basis of comparison. This figure is still influenced by tax cuts put in place in the second half of 2022, which brought down fuel and electricity prices.
The IPCA-15 slowdown was due to the impact of falling gasoline and airfare prices, said Andréa Angelo, an economist at Warren Rena. Gasoline declined 0.21% and airline tickets saw a 17.26% drop. Combined, they took 0.31 percentage points off the indicator, Ms. Angelo estimates, noting that household items and electricity also helped “in the decompression.” In the opposite direction, food at home pushed the IPCA-15 upwards, going from a deflation of 0.15% in April to a high of 1.02% in May. Pharmaceuticals also rose sharply, up 2.68%.
The cores of the indicator — measures that try to eliminate or reduce the influence of more volatile items — had a more modest deceleration. The average of the five most monitored by the Central Bank went to 0.42% in May from 0.45% in April, bringing the 12-month figure to 6.76% from 7.49%, according to MCM Consultores Associados. This is the first time the average of these cores is below 7% in this basis of comparison since October 2021, but it is still well above the target pursued by the Central Bank this year, of 3.25%.
Services had a deflation of 0.06% in the month, well below the high of 0.53% of the previous month. However, the figure was driven by a fall in airline tickets. Underlying inflation in services, which concentrates the most demand-sensitive items, was less favorable, rising to 0.45% in May from 0.51% in April. This measure excludes domestic services, tourism, courses, and communication. Over 12 months, it fell to 6.85% from 7.41%, MCM figures show.
But another subset of services showed a significant slowdown — labor-intensive services, which includes domestic work, hairdressing, doctors, and dentists. It rose 0.34% in May, down from 0.51% in April.
Among the good news is the result of the cores and services in one of the analysts’ favorite measures to evaluate the behavior of inflation in the short term: the annualized three-month average, seasonally adjusted, which avoids excessive volatility of the monthly figure. According to this criterion, the average of the five cores closely monitored by the Central Bank fell to 6.2% in May from 6.5% in April, after rising for three consecutive months. In the case of the underlying services, the three-month seasonally adjusted annualized average fell from 6.1% to 5.8%, according to MCM.
After some inflation indicators showed a picture of slow disinflation, the May IPCA-15 brought a more positive picture, indicating that high interest rates are having a greater impact on prices. With the prospect of the approval of the new fiscal framework, some analysts are hoping for a reduction in the key interest rate Selic, currently at 13.75% per year, in the near future. However, the Central Bank has indicated that it is unlikely to lower the rate in the short term, reiterating that there is no mechanical relationship between the approval of the new fiscal regime and monetary policy. In the Focus survey with analysts released Monday, forecasts for IPCA this year fell significantly. If this movement is repeated in the estimates for the following years, the chances of seeing a rate cut soon will increase.
*Por Sergio Lamucci — São Paulo
Source: Valor International