Mid-month inflation well above expectations

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The latest IPCA-15, the mid-month inflation rate measured by the country’s national statistics institute IBGE, recorded a 0.28 percent growth in August, well above market expectations of around 0.17 percent according to a Reuters poll with analysts. The result was mainly driven by raises in electricity and water and sewage bills. As a result, the IPCA-15 accumulated 4.24 percent growth in the 12-month window.

The cost of seven of the nine groups of products and services surveyed by IBGE increased in August. The primary influence came from the housing group (1.08 percent), which contributed to an increase of 0.16 p.p. in the monthly result, driven by the increase in residential electricity bills (4.59 percent).

This increase was caused by price adjustments in three state capitals (Curitiba, Porto Alegre, and São Paulo) and by a one-off comparative effect — the so-called Itaipu bonus — which helped reduce electricity bills by up to BRL 15 in mid-July. In addition, some regions also had adjustments in water and sewage prices, leading the service to register an increase of 0.20 percent in the country in the first 15 days of the month.

The transportation services group had a 0.23 percent increase in prices. However, this increase still does not consider the adjustment in gasoline and diesel prices at Petrobras refineries, announced on August 15. Analysts expect, however, a significant impact of fuels on the IPCA in August and September of at least 0.10 p.p. in each month.

Gasoline has the highest individual weight among all 377 goods and services that comprise the official IPCA inflation index, measured by the Brazilian Institute of Geography and Statistics (IBGE). In July, it accounted for 4.79 percent of the final reading.

The increase in gasoline and diesel prices at the refineries of oil giant Petrobras — which accounts for more than 80 percent of the country’s refining capacity — caused analysts from the leading financial institutions to raise their projections for inflation in 2023. Last Monday, the latest Focus report by the Central Bank pointed to an average forecast of 4.90 percent for official inflation at the end of this year — above the target ceiling of 4.75 percent.

Fabiane Ziolla Menezes

Former editor-in-chief of LABS (Latin America Business Stories), Fabiane has more than 15 years of experience reporting on business, finance, innovation, and cities in Brazil. The latter recently took her back to the classroom and made her a Master in Urban Management from PUCPR. At TBR, she keeps an eye on economic policy, game-changing businesses, and people driving innovation in Latin America.