Official inflation in Brazil hiked in September and exceeded 10% in 12 months for the first time in five and a half years. The Extended National Consumer Price Index (IPCA) rose 1.16% in September (over 0.87% in August). The data released this Friday by the Brazilian Institute of Geography and Statistics (IBGE) were the highest for the month since 1994 and took the accumulated rate in 12 months up to September to 10.25%. The 12 months index did not reach double digits since February 2016 (10.36%), a year marked by the deepening of the financial crisis that began in 2014.
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If inflation remains on this course, it will end the year well above the official target ceiling for this year, of 3.75%, with a margin of 1.5 percentage points more or less. Behind the high inflation, there are factors such as the exchange rate and the water crisis, in addition to input costs, which have already led Brazil‘s Central Bank to raise the country’s benchmark interest rate to 6.25% per year — in a movement not unlike other Latin American neighbors such as Mexico and Colombia.
Demand is still recovering, but slowly as the economy picks up. And there is the cost pressure of energy, gasoline, and the dollar. The high appreciation of the dollar stimulates exports and reduces domestic supply. The dollar has been weighing on IPCA
PEDRO KISLANOV, MANAGER OF IPCA RESEARCH AT IBGE.
The entire unstable political scenario on the eve of an election year — Brazil will have presidential elections in 2022 — also has an important bearing on the behavior of the real against the dollar.
Energy and fuel were the main price villains in September, but not the only ones
In September, the villain continued to be electric energy, which rose 6.47% when the “water scarcity” tariff flag came into effect — in the previous month, the red flag was level 2. Some years ago, Brazil implemented a tariff flag scheme to indicate the weight of the thermoelectrics operation on the entire system. These plants, moved by fuel oleo and other fossil sources, have a high cost, but they have to be turned on every time the country faces a water crisis (which is more and more common).
Electric energy already accumulates in 12 months high of 28.82%, which led housing costs to increase 2.56%, sharply accelerating from the 0.68% rise recorded in August.
The price of bottled gas (an energy source for most Brazilians when cooking) rose 3.91% in September, the 16th consecutive high leading to a cumulative increase in 12 months of 34.67%. Transport prices, in turn, rose 1.82%, while food and beverage prices rose 1.02%.
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Altogether, the three groups contributed around 86% of the IPCA result in September.
Although (the number) was lower than projected, it does not bring more comfortable elements [to the analysis]. The scenario we outlined at the beginning of the year, where the IPCA would be strong in the middle and then cool off throughout the second half, is not materializing.
GUSTAVO CRUZ, ECONOMIST AND STRATEGIST AT RB INVESTIMENTOS.
(Translated and co-written by LABS)
