Itaú BBA - IPCA-15 rose 0.11% in September, as year-over-year change slid to 2.56%

Macro Brazil

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IPCA-15 rose 0.11% in September, as year-over-year change slid to 2.56%

September 21, 2017

Our preliminary forecast for the headline IPCA in September is a 0.10% increase

The mid-month consumer price index IPCA-15 rose 0.11% in September, close to our estimate and the median of market expectations. Year-over-year inflation decelerated to 2.56% from 2.68% in August. Transportation provided the largest upward contribution during the month (0.22 p.p.), driven by fuels and airfares. On the opposite side, food and beverages provided the biggest downward contribution (-0.23 p.p.), as the group posted its fourth consecutive month of deflation. Our preliminary forecast for the headline IPCA in September is a 0.10% increase, keeping the year-over-year rate stable at 2.5%.

The IPCA-15 result in September (0.11%) virtually matched our estimate (0.10%) and the median of market expectations (0.13%). The index rose 0.35% in the previous month and 0.23% in September 2016. Hence, the IPCA-15 is up by 1.90% year-to-date (down substantially from 5.90% in the year-earlier period).  The year-over-year change slowed down to 2.56% (from 2.68% in August). According to census bureau IBGE, the year-to-date and year-over-year readings are the lowest for September since 1998.

Market-set prices dropped 0.14% during the month and the year-over-year change slid to 1.4% (1.8% in August). Regulated prices were pressured by gasoline and advanced 0.86% during the month, pushing the year-over-year change up to 6.2% (5.5% in the previous month). Among market-set prices, costs for food consumed at home fell 1.54%, industrial prices moved just 0.06%, and service prices – pressured by airfares – climbed 0.35%. In year-over-year terms, the price change for food consumed at home declined further to -5.4% from -4.2% in August; the change in industrial prices receded to 1.1% from 1.3%; while service inflation slowed to 4.9% from 5.0%. In the service segment, the underlying indicator – which excludes tourism items, household services, courses and communication – went up 0.16% in September and the year-over-year change decelerated to 4.2% from 4.4%.

Breaking down by product groups, the largest upward contribution during the month came from transportation (0.22 p.p.), reflecting higher prices for fuels (0.17 p.p.) and airfares (0.06 p.p.). Meanwhile, personal expenses and housing contributed 0.05 p.p. and 0.04 p.p., respectively. On the opposite end, the largest downward contribution came from food and beverages (-0.23 p.p.), following widespread price cuts. September marked the fourth consecutive month of deflation in the food group, totaling -2.6% during this period.

Core inflation measures also decelerated vs. August. The average of the three most used core measures (smoothed trimmed means, double weight core and core inflation by exclusion) rose 0.18% (0.28% in the previous month), while the year-over-year change slowed down to 3.8% from 4.1%. The diffusion index (which measures the share of products with positive price changes) narrowed to 46.0% from 49.9% in August. Seasonally-adjusted total diffusion receded to 50% from 53%.

Based on the IPCA-15 report and other current information, our preliminary forecast for the headline IPCA in September is 0.10%, keeping the year-over-year change virtually unchanged at 2.5%. As in today’s report, the largest upward contribution to the IPCA will come from the transportation group, still reflecting higher prices for fuels and airfares. On the other hand, the food group – posting negative change for a fifth consecutive month - will exert the most downward pressure on monthly inflation.

Table 1 – IPCA-15


 

Elson Teles
Economist


 

 



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