Itaú BBA - IPCA-15 rose 0.24% in May; year-over-year change slid to 3.8%

Macro Brazil

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IPCA-15 rose 0.24% in May; year-over-year change slid to 3.8%

May 23, 2017

We maintain our forecast for the headline IPCA in May at 0.50%

The mid-month consumer price index IPCA-15 advanced 0.24% in May, slightly above our estimate and the median of market forecasts. Year-over-year inflation decelerated to 3.77% from 4.41% in April. Food and beverages, and healthcare and personal care provided the biggest contributions to the monthly increase. On the opposite end, transportation posted a negative change, due to lower airfares and fuel prices. Based on current information, we maintain our forecast for the headline IPCA in May at 0.50%, with the year-over-year rate slipping to 3.8%. 

The IPCA-15 result in May (0.24%) printed slightly above our estimate and the median of market expectations (both at 0.20%). The index had climbed 0.21% in the previous month and 0.86% in May 2016. Hence, the IPCA-15 is up by 1.46% year-to-date (down from 4.21% in the year-earlier period), while the year-over-year change decelerated to 3.77% from 4.41% in April. According to census bureau IBGE, it was the lowest year-over-year change since July 2007.

Market-set prices rose 0.22% during the month, and the year-over-year change slipped to 3.7% (4.2% in April). Regulated prices advanced 0.29% during the month and the year-over-year change slowed down to 3.9% (5.1% in the previous month). Among market-set prices, costs for food consumed at home increased 0.4%, industrial prices advanced 0.1%, and service prices went up 0.2%. In year-over-year terms, the price increase for food consumed at home receded to 1.7% in May from 2.4% in April; the change in industrial prices slid to 2.1% from 2.6%; while service inflation cooled down to 5.8% from 6.2%. In the service segment, the underlying indicator – which excludes tourism items, household services, courses and communication – climbed 0.3% in May, while the year-over-year change decelerated to 5.0% from 5.3%.

Breaking down by product groups, the largest upward contributions during the month came from food and beverages (0.11 p.p.), and healthcare and personal care (0.10 p.p.). Most of the pressure in the food group came from tubercles, roots and legumes (as prices soared 16% for potatoes and 12% for tomatoes), food consumed away from home, and milk and dairy. In healthcare, medication and health insurance premiums provided the largest upward contributions. Medicines became 2.1% more expensive and provided the largest individual contribution (0.07 p.p.), still reflecting the annual adjustment enacted in late March. On the other hand, the transportation group posted a negative change (-0.07 p.p.) for a third consecutive month. In that case, the largest downward contributions came from fuels (-0.06 p.p.) and airfares (-0.04 p.p.).

Core inflation measures accelerated somewhat from April. The average of the three most used core measures (smoothed trimmed means, double weight core and core inflation by exclusion) rose 0.34% (0.30% in April), but the year-over-year change decelerated to 4.9% from 5.6%. The diffusion index (which measures the share of products with positive price changes) stood at 56.4%, virtually unchanged from 56.7% in April. Seasonally-adjusted total diffusion widened to 56% from 54%.

Based on the IPCA-15 report and other current information, we maintain our forecast for the headline IPCA in May at 0.50%, with the year-over-year change slowing down to 3.8% from 4.1% in April. In our view, the largest upward contribution will come from housing (0.35 p.p.), driven by electricity (0.30 p.p.), due to the reversal of the effect related to the Angra III nuclear power plant, which had caused a temporary decline in electricity bills in the previous month. The healthcare and personal care is set to provide a contribution of 0.10 p.p., still reflecting adjustments in medication prices and health insurance premiums. On the other end, we expect transportation and food to give negative contributions in May.

Table 1 – IPCA-15


 

Elson Teles
Economist

 



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