Itaú BBA - IPCA prints deflation of 0.23% in June

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IPCA prints deflation of 0.23% in June

July 7, 2017

Our preliminary estimate for the IPCA in July stands at 0,18%

The IPCA consumer price index fell 0.23% in June, slightly below our estimate and the median of market expectations. As a result, the index is up 1.18% in the first half, with the 12-month retreating to 3.00%, compared with 3.60% in the previous month. The main contribution to the retreat during the month came from electricity bills (-0.20 p.p.), reflecting the activation of the green flag of power rates during the start of June, after two months of the higher red flag of rates. For July, our preliminary estimate for the IPCA is for an increase of 0.18%, pulling the year-over-year change down further to 2.7%. The main contribution for the increase during the month will come from electricity bills, due to the effects of activating the yellow tariff flag and tariff adjustments at some utilities. 

The IPCA decreased 0.23% in June, slightly below our call (-0.17%) and the median of market expectations (-0.19%). The biggest deviation from our forecast came from market-set prices in the industrial sector, which more than offset the higher-than-expected print for services. The IPCA had climbed 0.31% in the previous month and 0.35% in June 2016. In the first half, the IPCA has climbed 1.18%, far below the 4.42% reported during the year-earlier period. According to the IBGE, this was the lowest year-to-date rate for the first semester since 1994. The year-over-year IPCA rate retreated to 3.00% after reaching 3.60% in May.

Market-set prices fell 0.04% in June, with the year-over-year rate falling to 2.9% (compared with 3.3% in the previous month), while regulated prices fell 0.83% - with the declines in electricity and gasoline prices standing out - and the year-over-year rate falling to 3.3% (compared with 4.4% in the previous month). Among market-set prices, prices for food consumed at home fell 0.93% during the month, with the year-over-year rate retreating from 1.1% to -0.6%; industrial prices fell 0.12%, with the year-over-year rate declining from 1.6% to 1.3%; and services climbed 0.43%, with the year-over-year rate climbing from 5.6% to 5.7%. In turn, the underlying service inflation indicator - which excludes items related to tourism, household help, courses and communications - climbed 0.45%, with the year-over-year rate rising from 4.6% to 4.7%.

Breaking down by product groups, the downward contribution during the month came from housing (-0.12 p.p.), food and beverages (-0.12 p.p.), and transportation (-0.09 p.p.). In the housing group, electricity bills stood out (-0.20 p.p.), in light of the 5.5% decline that resulted in large part from the activation of the green tariff flag at the beginning of the month, following two months operating with the red flag (which resulted in extra charges on electricity bills). In the food group, the biggest downward contribution came from fresh fruits and vegetables, followed by meats and by milk and derivatives. In the transportation group, meanwhile, the highlight was the drop in fuel prices (-0.14 p.p.). On the other hand, the biggest upward contribution came from healthcare and personal care (0.05 p.p.), with the biggest impact coming from insurance plans.

As for core inflation measures, the average of the three most used ones (smoothed trimmed means, double weight core and core inflation by exclusion) rose 0.20% in June, after rising 0.31% in the previous month. As a result, the year-over-year rate decelerated to 4.3% (from 4.6% in May). The diffusion index (which measures the share of products with positive price changes) retreated to 47.2% (compared with 51.7% in the previous month). Seasonally adjusted total diffusion increased from 51% to 52%.

Our preliminary estimate for the IPCA in July is for an increase of 0.18%, which will lead to a new decline in the year-over-year rate, to 2.7%. The biggest contribution to the increase will come from electricity, reflecting the activation of the yellow flag at the beginning of the month, as well as the tariff adjustments at some utilities with a relevant weight in the IPCA. On the other hand, the transportation group is likely report negative rates for the fifth month in a row due to new declines in the price of fuels.

Table 1 – IPCA


 

Elson Teles
Economist

 



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