Inflation will remain persistent despite slowing, economists say
According to experts, IPCA should only leave the double-digit level in October
For those who only look at the IPCA (National Broad Consumer Price Index), the official inflation indicator, the worst seems to be behind us — but that doesn’t mean that consumers will feel relief in their pockets anytime soon. After probably reaching its peak, inflation tends to cool down slowly in the coming months.
“We talk a lot about disinflation, which is a lower inflation rate. That means prices accelerating less, but increasingly higher. For the consumer, it is still a heavy period for spending”, says Júlia Passabom, economist at Itaú Unibanco.
In the 12-month period up to April, the IPCA was 12.13%, the highest level since October 2003 (13.98%). This Tuesday (24), the IPCA-15 (Extended National Consumer Price Index-15) reached 12.20%, with an increase of 0.59% in May, compared to an increase of 1.73% in the previous month, informed the IBGE (Brazilian Institute of Geography and Statistics).
What helped to hold the result in May was the deflation of the housing group (-3.85%), driven by the end of the extra charge on the electricity bill, with the change from the water scarcity flag to green from 16 Of april. Transport and clothing showed lower rates, food and beverages also dropped.
According to Itaú’s projections, inflation should remain at the rate of 10% until the end of the third quarter and leave the double-digit level only in October. The bank expects the indicator to end 2022 still under pressure, at 8.5%, reflecting higher administered prices (fuel) and disinflation of goods in the second half of the year.
Mirella Hirakawa, senior economist at AZ Quest, sees as a risk to a more moderate inflation possible readjustments in fuel prices, which quickly impact the population’s income, in addition to bottlenecks coming from industrialists, still very pressured.
In their projections, the IPCA should remain on a plateau around 11% to 12% until August, retreating to single digits also in October, until closing the year at 9.3%.
The rise in inflation reflects a series of successive inflationary shocks since mid-2020, starting with food (food at home), followed by administered (energy), until reaching industrial (goods). “The last person to be contaminated is the services sector, which is much more persistent and inert”, says Júlia Passabom, from Itaú.
In addition to being high, inflation is widespread. Economist Margarida Gutierrez, a professor at Coppead/UFRJ (Institute of Graduate Studies and Research in Administration, Federal University of Rio de Janeiro), points out that centers remain under pressure and that more than 70% of the prices that make up the basket rose in April. , with a diffusion rate of 78.25%.
Price adjustments have ensured the persistence of inflationary pressures in the country, as well as the international scenario, with lockdowns in China and sanctions against Russia due to the war in Ukraine.
Given the international context, Luiz Fernando Figueiredo, former director of the Central Bank and founding partner of Mauá Capital, observes that the world is not yet at the peak of inflation, but that Brazil is in a different situation.
The first reason, according to him, is the fact that the country is an exporter of commodities and the shock is attenuated by the exchange rate, which tends to be a little more appreciated. Second, it points to the advanced stage of the monetary tightening cycle in Brazil.
On May 4, the Central Bank’s Copom (Monetary Policy Committee) raised the basic interest rate (Selic) by 1 percentage point, to 12.75% per year. For the next meeting in June, it signaled a further rally of a smaller magnitude.
“The Central Bank has already done 90% of the work, but there is the issue of lag. Monetary policy accumulates effect until it becomes fully effective and ends up reducing inflation. It’s a process,” he says.
The lag in monetary policy, which has up to 18 months to have a full effect on the economy, paves the way for a deceleration in price increases. For Figueiredo, the tendency is for inflation to calm down, also helped by the lower fiscal risk in the short term, but with the exception that we still live in a scenario of great uncertainty.
The rate forecast by the government for the IPCA in 2022, of 7.9%, represents more than double the target to be pursued by the BC. The value set by the CMN (National Monetary Council) for this year is 3.5% — with a 1.5 percentage point tolerance for more or less.
If the projections are confirmed, it will be the second consecutive breach of the target. Inflation closed 2021 at 10.06%. Economist Heron do Carmo, a professor at FEA-USP (Faculty of Economics, Administration, Accounting and Actuarial Science, University of São Paulo), points out that decreasing projections until 2023 show that monetary policy is calibrated to bring down inflation.
Seasonality should also contribute to this slow process in the coming months. Specialists indicate that the IPCA is usually higher in the first quarter of the year, driven by readjustments in administered prices, such as an increase in school fees, and by in natura foods, sensitive to climate impacts.
Earlier this year, food production was affected by adverse weather in Brazil. Drought records in the South, in addition to heavy rains in the Northeast and Southeast, affected several plantations. Thus, they generated reflections on supply and prices.
The government has also adopted measures in an attempt to hold down prices in the short term: tax exemptions on diesel and industrialized products (with the IPI cut to 35%), in addition to the reduction of import tax on ethanol and some inputs and food.
The most recent example was seen last Monday (23), when Camex (Chamber of Foreign Trade) approved a new 10% reduction in Import Tax rates on products purchased abroad – beans, meat, pasta, cookies , rice and building materials, for example.
It is also discussed the reduction of ICMS (Tax on Circulation of Goods and Services) applied to fuels and electric energy which, if approved, would bring a momentary relief to inflation.
For Mauro Rochlin, an economist at FGV (Fundação Getulio Vargas), a scenario of decreasing inflation on the eve of the election could serve the government at a time when President Jair Bolsonaro (PL) seeks his second term and follows in second place in polls of intent. of votes, behind former president Luiz Inácio Lula da Silva (PT).
“The government can have the argument that it has controlled inflation, it can be a narrative that works”, he says.
The strategy, however, also carries risks. Economists warn that initiatives such as tax cuts bring negligible results on inflation in the short term and can produce secondary effects and lead to an increase in demand – which can put pressure on prices ahead, generating an opposite result than expected.