Brazil has second biggest increase in wholesale prices in the world, study shows – Economy


Without slack in the increase in wholesale prices and with negative news about the climate and the recomposition of administered tariffs, the concern with inflation in 2021 is growing in the financial market, contrasting with the speech of the central bank (BC), that the shock seems temporary.

This week, the Focus Bulletin, which gathers projections from financial market analysts, showed a new increase in the estimate for the Extended National Consumer Price Index (IPCA) next year, from 3.22% to 3.40%, getting closer and closer to the center of the target (3.75%) pursued by the BC. And institutions that see inflation surpassing the central target in 2021 are not uncommon, even with estimates of 4.0%.

With the result of 0.81% of the IPCA-15 of November – above the average of expectations, of 0.72%, of the survey of the Broadcast Projections – may be a new engine for revisions. Thus, some houses are also beginning to revise bets for the Selic, the basic interest rate, with anticipation of the monetary normalization of the end of the year to mid-2021.

The alert became more intense with the successive surprises of wholesale products, which have not shown a slowdown in the strong increase. Within the General Price Index – Internal Availability (IGP-DI) of October to the IGP-10 of November, for example, the Broad Producer Price Index (IPA) decelerated from 4.86% to 4.59%, with agricultural products from 9.51% to 9.49% and industrial products, from 2.99% to 2.58%.

The fear is that an enormous increase in prices over 12 months (33.04% of the IPA, 61.02% of agricultural products and 23.66% of industrial products) will still be passed on to retailers, which, in the same period, according to the Consumer Price Index (IPC) is up 4.18%. O HICP, the country’s official inflation, in turn, totals 3.92% in 12 months until October.

“There is not the slightest sign of a slowdown in the agricultural IPA, transfers to the consumer (in the price of food) should only decrease two to three months after the beginning of the reduction in producer prices”, highlights economist Alexandre Lohmann, from GO Associados , which already projects IPCA of 3.80% in 2021.

“We also have to understand the size of the climate problem in 2021. NASA released a recent letter saying that Latin America was in the worst drought since 2002,” he says.

Citing the main factor of food and the risk of La Niña, a climatic event that causes more rain in the north of the country and drought in the south, damaging crops, economist Carlos Lopes, from Banco BV, raised the projection for the IPCA in 2021 of 3 , 10% to 3.60%.

Concern about administered prices

Another point that is gaining more and more attention – and concern – from the market is the readjustment of prices administered, dammed or contained this year because of the coronavirus pandemic. Last week, the National Supplementary Health Agency (ANS) authorized a maximum increase of 8.14% for individual and family health plans from May 2020 to April 2021.

But as, due to the pandemic, it can only be applied from January, the agency suggested that the increase be paid in installments between the next 12 months of next year. The problem is that, as of May, a new adjustment may be authorized. With this, the bank Credit Suisse, which already had a projection for 2021 above the target, at 3.80%, raised the estimate again this Monday (23), to 4.00%.

“In administered prices, 2021 will be the return of those who were not,” says economist Andrea Angelo, of Canvas Capital, who projects inflation of 6.15% for the group and 3.50% for the IPCA.

The strong increase authorized by ANS also raises the fear with the electricity readjustments next year. For the item, Andrea projects an increase of 5.50% in 2021, in a scenario with a green flag throughout the year. She also recalls that it is likely to see more significant inflation in public transport, which had low readjustments in 2020 due to municipal elections. It projects a 4.0% increase in interstate bus fares (7.90% deflation in 2020) and 5.0% in urban buses (1.58% in 2020). Lopes, from BV, also mentions the change of the tariff flag to the electricity bill.

JPMorgan and Barclays also highlight the dynamics of administered prices in their revisions to the IPCA to 3.60% next year. In the view of Barclays economist for Brazil, Roberto Secemski, there will be an exchange of components in inflation next year, with food and tradables giving way, with the fall in demand due to the end of emergency aid limiting space for transfers, but progress of administered (from 0.70% in 2020 to 5.40% in 2021) and services (from 1.80% to 2.90%).

“The number itself is not a concern because there is still slack in relation to the target, but the dynamic deserves attention. Although we believe that less pressure from the ‘coronavoucher’ (the emergency aid paid by the government) will happen, assuming that it is indeed discontinued, the pressure coming from the IGPs is quite significant. Where it is possible, it is currently seeing adjustments. The pressure exists, the question is whether it will flow in 2021 “, says Secemski.

Added to all this is the prospect that the real should not appreciate significantly next year, considering the current level of the exchange rate, around R $ 5.40. At Canvas Capital, Andrea states that the risk of onlending to consumer inflation in 2021 is high.


Some institutions still see no reason to worry about the dynamics of inflation and maintain a good gap between the projection for 2021 and the center of the official target, mainly due to the perspective that unemployment is still expected to increase and idleness tends to mitigate high prices .

In Mauá Capital, the IPCA is expected to end 2021 at 2.8%, but chief economist Alexandre Ázara points out that the peak should occur at 4.5% in the middle of the year. “The recent increase in inflation is due to the shock of food and some materials that were not produced in the short term. We cannot be worried about inflation with unemployment of 20%, which is the value that we find when we adjust the Economically Active Population (PEA) for long-term values. “

With the revision of the IPCA, BV also changed the monetary policy bets, anticipating the beginning of interest rate hikes from October 2021 to August. The forecast is that the Selic will end the year at 3%, from 2% per year in 2020.

Secemski, on the other hand, assesses that the Central Bank needs to be attentive to the dynamics of inflation, but there is no reason to answer yet with monetary policy, since the recovery will occur mainly in the managed. But Barclays already expects interest rates to rise as of August, with the Selic rate ending 2021 at 3.75% with a view to the 2022 target (3.50%).

At Quantitas Asset, despite recognizing greater risk in relation to the dynamics of inflation, economist João Fernandes still believes that the trend is for the IPCA to decelerate from the second quarter onwards. Therefore, the movement should not give rise to a response from the BC in the short term. Fernandes’ base scenario is for high interest rates only at the beginning of 2022.

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