Central Bank’s median projections for industrial goods inflation are 9.2% for 2022 and 3.8% next year
10/04/2022
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Fábio Romão — Foto: Silvia Costanti/Valor
Inflation of industrial goods, especially those linked to the economic cycle, accelerated again recently, reinforcing the perception among economists that the cooling of industry costs will help bring the country’s official inflation (IPCA) down this year. This will still be a gradual process, though, and industrial prices are still expected to remain historically high in 2022.
With the disorganization of the global production chains after the pandemic shock, the cost of the local industry ranged from 1.46% in the year to May 2020 to 36.37% in May 2021, a record acceleration since records began in 2006, a study by Bradesco shows. Based on a methodology suggested by the Central Bank, the bank’s economists have built an index of the cost of inputs in the Brazilian manufacturing industry.
According to the Brazilian Institute of Geography and Statistics (IBGE), a little more than 80% of the costs with inputs are local goods, but even in these cases, several of them have a defined price in the global market, notes Bradesco. This is the case of oil and its products, whose weight is almost 15% of the total cost of industry inputs, notes the bank. “In this period, from May 2020 to May last year, the price of oil, its products, fuels in general and semi-finished products, rolled products and steel pipes were the main causes for the rise in costs,” Bradesco economists Marcelo Gazzano and Myriã Bast wrote.
In August 2022, the industry’s cost still varied by almost 21%, they calculate. “We are seeing a normalization, but coming from a very high base,” said Mr. Gazzano. “At the point it is, it’s not enough. It must keep improving, it should not stagnate now,” said Ms. Bast.
September data from Bradesco’s proprietary survey of 3,000 companies indicate that this improvement continued last month, said Ms. Bast. In another metric for the industry cost index, considering a six-month period and a year, the variation in August is already lower, at 15%, said Mr. Gazzano.
In the September forecast, industrial goods inflation accelerated again to 0.32%, against 0.28% in the August IPCA-15, according to MCM Consultores. Underlying industrial goods, which do not include items with more volatile prices such as ethanol and cigarettes, went to 1.02% from 0.91%. In 12 months, the general inflation of industrial goods even decreased to 11.88% in September from 12.77% in the August preview, but the underlying inflation went to 13.83% from 13.48%.
In the Focus bulletin, the Central Bank’s survey with market analysts, the median projections for industrial goods inflation are 9.2% at the end of this year and 3.8% next year.
Bradesco projects industrial goods inflation at 9.2% this year, from 12% in 2021, but believes it could be just under 3% in 2023. “If nothing changes and it follows a trajectory like we are seeing in the fiscal year, we could have the industrial IPCA settling around 5% next year. But in our scenario, this will continue to adjust, so this is not our official projection,” said Mr. Gazzano.
The “stress indicator” of global chains drawn up by UBS’s global research team and Evidence Lab was 1.2 standard deviations from normal in August this year, the Swiss bank said in a report. By October 2021, this indicator had reached 5 standard deviations. The UBS BB team that follows Brazil highlights that August was the fifth consecutive month of improvement of the global indicator, signaling future normalization of goods inflation also in the country.
According to UBS BB’s calculations, the deceleration of goods prices accounts for more than 1 percentage point of the expected deceleration of the IPCA until the end of the year. UBS BB projects IPCA at 5.7% in 2022 and 4% in 2023, with industrial goods at 8.4% and 0.7%, respectively.
“Everything that happened in the pandemic and also because of the war between Ukraine and Russia is hindering a clearer deceleration of industrial goods. More recently, in the second half of the year, we are seeing partial rearrangement of the production chains and commodity prices losing strength. This contributes to a less arid formation of industrial prices,” said Fábio Romão, an economist from the consulting company.
He projects 9.8% for industrial inflation in 2022 and 5.4% in 2023. “There is the prospect that global economic activity will lose strength next year, which signals that industrials will slow down. We may have from 2023 onwards a rate of evolution of industrial prices that is not so different from the index,” he said.
In the September Inflation Report (IR), released last week, however, the Central Bank estimated that the normalization of production chains in Brazil was slower than the global average as of May this year, even though it maintains the rebalancing trend. In addition, the monetary authority warned that new shocks, especially lockdowns to combat the transmission of Covid-19 in China or problems arising from the war between Russia and Ukraine, may interrupt the normalization trajectory in the world and Brazil.
*By Anaïs Fernandes — São Paulo
Source: Valor International