Economy

Pressured by food prices, inflation ends 2020 at the highest level in 4 years in Brazil

The IPCA index ended 2020 with an accumulated increase of 4.52%, according to the Brazilian Institute of Geography and Statistics (IBGE)

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  • The year 2020 started with the scenario of weak prices, intensified by the shutdowns and isolation measures to contain the coronavirus pandemic;
  • However, in the middle of the year, prices started to increase, with food coming into prominence at the end of the year amid growth in exports, accompanied by the strengthening of the dollar against the real.

Inflation in Brazil ended 2020 within the limit of the government’s target, but at the highest level in four years, under strong food pressure. The IPCA index ended 2020 with an accumulated increase of 4.52%, against 4.31% in 2019, according to data released on Tuesday by the Brazilian Institute of Geography and Statistics (IBGE).

READ ALSO: Retail in Brazil rose 6.6% in December over November, shows survey

The result shows that inflation was above the center of the government’s target of 4%, but within the tolerance range since the margin was 1.5 percentage points more or less. This was the highest rate since 2016 when the IPCA rose 6.29%. Still, it marked the third consecutive year within the band, after in 2017 it ended slightly below the floor.

The year 2020 started with the scenario of weak prices, intensified by the shutdowns and isolation measures to contain the coronavirus pandemic. However, in the middle of the year, prices started to increase, with food coming into prominence at the end of the year amid growth in exports, accompanied by the strengthening of the dollar against the real.

“The pressure over the exchange rate in recent days may also put some pressure on the IPCA in the first months of 2021,” said brokerage XP in its Macro Watch report.

READ ALSO: Brazil’s foreign exchange flow has its 2nd worst year in history

For 2021, the inflation target set by the government is 3.75%, also with a 1.5 point margin. For the Central Bank, the assessment is that the current shocks linked to inflation will be temporary. If the inflationary scenario persists, however, the authority understands that it may have to raise the basic interest rate again – today at 2% per year.

“The data for the month (December) shows several signs of concern for the Central Bank, with special emphasis on the advance of the underlying industrial companies. We expect January to cool down due to the change in the energy tariff flag, among other factors. On the other hand, the acceleration of industries and the recent devaluation of the real suggest caution,” said Felipe Sichel, chief strategist at the digital bank modalmais.

Translated by LABS