IPCA-15 fell 0.18%, matching the lowest of market estimates

Macro Brazil

 

July 20, 2017

 

Our preliminary forecast for the headline IPCA in July stands at 0.07%

The mid-month consumer price index IPCA-15 fell 0.18% in July, matching the lowest of market estimates. Year-over-year inflation decelerated to 2.78% from 3.52% in June. Food and beverages (-0.14 p.p.) and transportation (-0.11 p.p.) provided the biggest negative contributions to the monthly reading, while housing (0.04 p.p.) and personal expenses (0.03 p.p.) gave the largest upward contributions. Based on current information, our preliminary forecast for the headline IPCA in July stands at 0.07%, with the year-over-year rate slipping to 2.5%. 

The IPCA-15 result in July (-0.18%) printed below our estimate (-0.08%) and right at the bottom of market expectations (median at -0.10%). The index had risen 0.16% in the previous month and 0.54% in July 2016. Hence, the IPCA-15 is up by 1.44% year-to-date (down substantially from 5.19% in the year-earlier period). The year-over-year change decelerated to 2.78% (from 3.52% in June), the lowest reading under this metric since March 1999.

Market-set prices dropped 0.18% during the month, and the year-over-year change slid to 2.5% (3.4% in June). Regulated prices also decreased 0.18% during the month and the year-over-year change slowed down slightly to 3.7% (3.8% in the previous month). Among market-set prices, costs for food consumed at home decreased 0.95%, industrial prices declined 0.49%, and service prices went up 0.38%. In year-over-year terms, the price change for food consumed at home reversed to -2.1% in July from 0.7% in June; the change in industrial prices slid to 1.3% from 1.9%; while service inflation slowed down to 5.5% from 5.8%. In the service segment, the underlying indicator – which excludes tourism items, household services, courses and communication – climbed 0.39% in July, but the year-over-year change decelerated to 4.6% from 4.8%.

Breaking down by product groups, the largest downward contributions during the month came from food and beverages (-0.14 p.p.) and transportation (-0.11 p.p.). The biggest negative contributions within the food group came from fresh fruits and vegetables, meats and milk. In the transportation group, fuels stood out (-0.16 p.p.), reflecting price cuts for gasoline (-3.0%) and ethanol (-4.8%). On the other hand, the largest upward contributions came from housing (0.04 p.p.) and personal expenses (0.03 p.p.).

Changes in core inflation measures were smaller than in June. The average of the three most used core measures (smoothed trimmed means, double weight core and core inflation by exclusion) rose 0.15% (0.31% in the previous month), as the year-over-year change decelerated to 4.3% from 4.6%. The diffusion index (which measures the share of products with positive price changes) receded to 45.2% in July from 49.6% in June. Seasonally-adjusted total diffusion narrowed to 50% from 51%.

Based on the IPCA-15 report and other current information, our preliminary forecast for the headline IPCA in July is 0.07%, with the year-over-year change slowing down again to 2.5% from 3.0% in June. In our view, the largest upward contribution will come from the housing group. Electricity bills are set to increase approximately 5.5% (impact of 0.18 p.p. on inflation), due to the activation of the yellow flag in the tariff flag system early in the month, in addition to tariff adjustments by some utilities. On the other hand, food and transportation are set to provide negative contributions.

Table 1 – IPCA-15

Fuente: ITAU

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