Institute links sharper inflationary impact on lowest income brackets to steeper increases in food prices, electricity
11/13/2024
October inflation rose for nearly all income levels in Brazil, with lower-income households seeing the highest increases, according to the Applied Economic Research Institute (IPEA). Only households with incomes above R$21,059.92 saw a slight deceleration. For very low-income households—earning less than R$2,105.99 per month—inflation climbed from 0.58% in September to 0.75% in October. Meanwhile, inflation rose from 0.55% to 0.71% for low-income households—those earning between R$2,105.99 and R$3,158.99.
The IPEA’s Income-Based Inflation Indicator, drawing on the Extended Consumer Price Index (IPCA) data from the Brazilian Institute of Geography and Statistics (IBGE), tracks inflation trends across income levels by total household income. The IPCA, Brazil’s benchmark inflation index, increased from 0.44% in September to 0.56% in October.
For households with middle-lower incomes (R$3,158.99 to R$5,264.98), inflation climbed from 0.48% in September to 0.61% in October. Middle-income households (R$5,264.98 to R$10,529.96) experienced an increase from 0.39% to 0.54%. Meanwhile, for middle-upper-income households (R$10,529.96 to R$21,059.92), inflation rose from 0.31% to 0.49%. Households earning over R$21,059.92, the only group to experience a slight deceleration, saw inflation ease to 0.27% in October from 0.33% in September.
The IPEA attributed the sharper inflationary impact on lower-income households to the steeper increases in food prices (up 1.06% according to the IPCA) and electricity costs (a 4.74% increase). Conversely, deflation in airline fares (-11.5%) and fuel (-0.17%) provided some relief for higher-income households.
“In October, although the food and beverage and housing categories were primary inflationary pressures across all income levels, the impact from these segments was proportionally stronger for lower-income households, given the larger share of their budgets allocated to these essentials,” said Maria Andreia Parente Lameiras, author of the study.
Higher inflation rates for low-income households have not been limited to October. Over the 12 months ending in October, the very low-income segment saw the highest inflation rate at 4.99%, while high-income households experienced the lowest rate at 4.44%. The average IPCA rate over the period was 4.76%, exceeding the Central Bank’s inflation target ceiling of 4.5%.
Year-to-date in 2024, low-income households have faced an inflation rate of 4.17%, compared to a lower rate of 3.2% for high-income households. By comparison, the IPCA rate over the same period stands at 3.88%.
Lack of rain delays planting of beans, soybeans; concerns increase export premiums at the port of Paranaguá
09/11/2024
Coffee crops damaged by drought in Bom Jesus — Foto: Alexandre Maroti/Arquivo pessoal
The recent fires in agricultural production areas in different parts of Brazil prompted a warning on the population but the dry weather is currently the major concern in Brazilian agribusiness. The lack of rain is delaying planting of important crops, such as soybeans and beans. The impact of the drought on the prices of food and other agricultural products has been limited so far. However, that does not downplay the issue as meteorology indicates that the dry weather is expected to continue in the foreseeable future.
In the case of soybeans, Brazilian agriculture’s main export item, the drought has demanded changes to the planting schedule for the 2024/25 season. According to the official calendar, in important producing states, such as Mato Grosso, sowing for the new season should start on the first weekend of September.
The delay in planting is accelerating sales on the spot market. Researchers from the Center of Advanced Studies on Applied Economics (CEPEA) say this movement fuels competition between domestic and international buyers for soybeans.
That is reflected in soybean premiums, a bonus paid on the price of the grain at origin. On Monday (9), premiums for soybeans delivered to the port of Paranaguá (Paraná) were $1.18 per bushel, and, for October, $1.20 per bushel. The CEPEA indicator based on the Paranaguá port has risen 1.35% this month so far, to R$140 per bag.
The drought has also hampered the planting of beans in the country. The sowing of the first of the three national crops began in August, mainly in Paraná, but the dry soil has made the work difficult. According to a survey by the Department of Rural Economy (DERAL), by the Secretariat of Agriculture and Supply, as of September 5th, planting had occurred in only 3% of the area planned for the 2024/25 summer season. In the same phase of the previous cycle, work had reached 10% of the area.
DERAL estimates that farmers in Paraná will plant 131,000 hectares of beans between August and December, an area 22% larger than that of 2022/23. “With the price of soybeans down [compared to previous years], farmers have turned to beans,” said Marcelo Lüders, president of the Brazilian Institute of Beans and Pulses (IBRAFE). If projections are confirmed, production should grow 57% in the state, to 251,000 tonnes.
At the moment, there is a stock of beans on the national market as the third yearly crop has ended—the harvesting was 812,500 tonnes. “In some areas of the Cerrado region, high temperatures increased the incidence of whiteflies, reducing productivity,” Mr. Lüders said.
Farmers have been receiving R$260 per bag of “carioca” beans [pinto beans], or R$50 more than the average for the same period in 2023. “If the weather doesn’t help, we won’t have beans between late October and the beginning of the next harvest,” Mr. Lüders says. “In that case, prices are expected to soar.”
The fires that occurred between late August and early September in São Paulo hit 80,000 hectares of sugarcane in the state. Due to the dry weather in the center south, the mills brought forward the end of crushing for the 2024/25 season, which could increase sugar prices in the first quarter of next year.
“The off-season will start earlier. As the drought damaged the sugarcane fields, there will be few sugarcane, and crushing will end earlier,” said Maurício Muruci, an analyst at Safras & Mercado. In São Paulo, the price of crystal sugar rose 2.5% in August, to R$24.50 per bag.
The analyst believes that the increase in crystal sugar prices on the domestic market could impact the entire food industry that uses sugar as an ingredient, as well as food staples. He said that could reflect on the Extended Consumer Price Index (IPCA) from October onwards. On Tuesday (10), despite the worrying situation regarding Brazilian crops, the most liquid sugar contracts on the New York Futures Exchange, a reference for global negotiations, closed down 1.9%, at 18.47 cents per pound.
Climate issues in Brazil and other important producing countries have fueled rising coffee prices on the international market. On Monday (9), the most traded contracts on the New York Futures Exchange rose almost 4%. On Tuesday (10), they rose another 0.73%, to $ 2.4720 per pound.
“The crops [for the 2025/26 season] are very weak, with high defoliation and drying flower buds. I see only bad consequences of this drought,” said Alexandre Maroti, the owner of 15 hectares of coffee in the city of Bom Jesus, Minas Gerais.
He says he used to produce, on average, 80 to 90 bags of coffee per hectare. At the moment, due to the drought and high temperatures, the yield is no more than 40 bags per hectare. Mr. Maroti foresees a 20% drop in the 2025/26 cycle.
The situation is a little better for larger farmers, who boast irrigation systems. Still, many Brazilian coffee farmers are wary and estimate a drop in harvesting volume until next year. In some states, such as Minas Gerais, it hasn’t rained for four months.
“Coffee prices have soared due to adverse weather events around the world, which could reduce production,” said Rich Asplund, coffee analyst at Barchart. Mr. Asplund points out that Robusta prices also rose—in this case, the increase was due to Typhoon Yagi’s passage through Vietnam, a country that had been hit by severe drought last year. Vietnamese production in 2023/24 was only 26 million bags, while the country’s annual capacity is 31 million per year.
Vicente Zotti, managing partner at Pine Agronegócios, points out that, in the case of arabica, it is necessary to analyze the climate of each coffee region in Brazil to estimate the consequences for the 2025/26 cycle. The extent of the drought varies in each of these areas.
The hot and dry weather led the Citrus Defense Fund (Fundecitrus) to reduce its estimate for the orange harvest in the citrus belt of São Paulo and the Triângulo Mineiro region. A 7.1% reduction was announced on Tuesday (10), to 215.78 million boxes of 40.8 kilograms, or 16.60 million boxes less than the previous projection, in May.
According to Climatempo, since May, the volume of rain was 31% below the forecast. In any case, drought is not the only major issue in orange crops, which are experiencing an increased incidence of greening, a disease that reduces the orchards’ productivity.
The severe drought damages some crops but the dry weather has not caused losses to all of them. “The drought has two sides. It favors some crops, such as carrots and tomatoes, as [low humidity] advances maturation and harvesting,” said João Paulo Deleo, a vegetable analyst at CEPEA.
In the case of potatoes, the harvest window starts in July and runs until early October. However, “when it starts to get too hot in September, harvesting is accelerated so as not to lose quality,” Mr. Deleo says.
The heat and dry climate also accelerate the ripening of some fruits, making them taste sweeter. The analyst points out, however, that most of these crops are irrigated and production costs increase in times like these, which could compromise supply in the longer term.
“Extremely dry periods could affect crops in other ways. Furthermore, it will be necessary to monitor the supply of water for irrigation,” he emphasizes.
(Camila Souza Ramos contributed reporting.)
*Por Fernanda Pressinott, Isadora Camargo, Cleyton Vilarino, Gabriella Weiss, Globo Rural — São Paulo
/i.s3.glbimg.com/v1/AUTH_37554604729d4b2f9f3eb9ad8a691345/internal_photos/bs/2024/6/P/xs7RbpRCaHP92QHsTK4A/whatsapp-20image-202024-09-10-20at-2009.58.21.jpeg)