ith a rise of 0.54% in October, the IPCA-15 presents concerning data, according to economists, and inflation estimates for this year may worsen
10/25/2024
Mid-month inflation index IPCA-15— a barometer for Brazil’s full month official inflation—presented “concerning” data in the eyes of economists, potentially triggering upward revisions in inflation estimates for 2024. The index rose 0.54% in October compared to September, surpassing the median of 0.51% among forecasts gathered by Valor Data. With this result, the IPCA-15 now shows a 4.47% increase over the past 12 months. Year-to-date, the index reached a 3.71% increase, according to data from statistics agency IBGE.
The largest impact came from the 5.29% increase in electricity prices, which accounted for 0.21 percentage points of the overall 0.54% rise in the IPCA-15, representing 38.9% of the month’s total increase. Vehicle insurance prices surged by 3.64%, bottled gas prices climbed by 2.17%, and meal prices increased by 0.70%—these were the main drivers of inflation in October. Consequently, household food inflation rose 7.05% over the 12 months leading up to October, exceeding the 4.47% increase in overall inflation during the same period.
On the other hand, transportation prices intensified their deflation, dropping to -0.33% in October from -0.08% in September, driven by an 11.40% decrease in airfare prices and free public transportation during the first round of municipal elections.
In light of these figures, the J.P. Morgan team has already revised its inflation estimate for 2024 to 4.7% from 4.5%, which exceeds the Central Bank’s target cap.
“Looking ahead, the October IPCA-15 seems to signal a more challenging fourth quarter. First, wholesale and consumer price tracking suggests that food prices will rise further, mainly due to a spike in meat prices, leading to an upward surprise in our estimates as well. Second, the effects of exchange rate depreciation on goods prices will likely remain in play,” the bank noted in a message to clients.
J.P. Morgan also justified the revision by announcing that it no longer expects a temporary discount on electricity prices by the end of the year.
According to Alberto Ramos, chief economist for Latin America at Goldman Sachs, the October IPCA-15 results reflect a “hostile” composition due to the spread of higher-than-expected price increases, including core inflation.
In addition to the Diffusion Index, which measures the proportion of goods and services that experienced price increases, rising to 58.3% in October from 55.0% the previous month, the average of the five core inflation measures tracked closely by the Central Bank accelerated to 0.43% in October, up from 0.18% in September, according to calculations by MCM Consultores. Over 12 months, the average of the core indices rose from 3.60% to 3.81%.
“The core inflation surprise was even greater than the headline. We saw a slightly worse reading for industrial goods, but still at a relatively low level. However, when we look at services, particularly underlying services, the variation is considerably worse than expected,” said Andrea Damico, chief economist at Armor Capital.
Underlying services inflation increased by 0.59% compared to the previous month. “I see a deterioration in data quality that the Central Bank is genuinely giving importance to,” Ms. Damico remarked, reinforcing the probability that the Central Bank will raise the base interest rate by another 50 basis points in its November meeting, bringing it to 11.25% per year.
For André Valério, an economist at Banco Inter, the IPCA-15 is unlikely to change the Central Bank’s stance, which has already signaled further rate hikes at its November 6 meeting. The data also heightens pressure on the government to implement stricter fiscal adjustments.
According to Carla Argenta, chief economist at CM Capital, the scenario highlighted in this IPCA-15 report strengthens the Central Bank’s monetary tightening stance. “For the Central Bank, the economy is operating at full capacity, and with growing demand, the adjustment occurs through prices. To address this, the institution believes in an even more restrictive monetary policy,” Ms. Argenta noted.
By Rafael Vazquez, Lucianne Carneiro — São Paulo and Rio de Janeiro
Source: Valor International