Itaú BBA - IPCA rises 0.16%, topping expectations

Macro Brazil

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IPCA rises 0.16%, topping expectations

October 6, 2017

Our preliminary estimate for the IPCA inflation in October is 0.40%

The consumer price index IPCA rose 0.16% in September, above our estimate and the median of market expectations. Hence, the index is up by 1.78% year-to-date and the year-over-year change accelerated to 2.54% from 2.46% in August. Transportation provided the largest upward contribution during the month (0.14 p.p.), driven by fuels and airfares. On the other hand, food and beverages provided the biggest negative contribution (-0.10 p.p.). Our preliminary estimate for the IPCA in October is a 0.40% advance, lifting the year-over-year change to 2.7%. Housing will provide the main upward pressure during the month, given adjustments in electricity bills and bottled cooking gas. The food group is likely to post a positive change after five consecutive months of deflation. 

The IPCA increased 0.16% in September, topping our call (0.10%) and the median of market expectations (0.09%, the highest at 0.15%). The index had risen 0.19% in the previous month and 0.08% in September 2016. Year-to-date, the IPCA climbed 1.78%, down significantly from 5.51% in the year-earlier period. Meanwhile, the year-over-year change accelerated to 2.54% from 2.46% in August.

Market-set prices went up 0.14% in September and the year-over-year rate reached 1.4% (1.3% yoy in August). Regulated prices advanced 0.24% and the year-over-year change slid to 6.1% (6.3% yoy in the previous month). Among regulated prices, the biggest upward contributions came from gasoline, bottled cooking gas and health insurance premiums; those were partly offset by falling electricity tariffs and urban bus fares. Among market-set prices, prices for food consumed at home declined 0.74% during the month, and the year-over-year change receded further to -5.3% (-5.2% yoy in August); industrial prices rose 0.18% during the month and the year-over-year change picked up to 1.0% (from 0.7% yoy); service prices were pressured by a 22% hike in airfares and increased 0.50% in September, while the year-over-year change advanced to 5.0% (from 4.8% yoy). The underlying service inflation indicator – which excludes items related to tourism, household help, courses and communications – rose 0.25% in September and the year-over-year change slipped to 4.1% (4.3% yoy in the previous month).

Breaking down by product groups, the largest upward contribution during the month came from transportation (0.14 p.p.), driven by fuel prices and airfares, with impacts of 0.10 p.p. and 0.07 p.p., respectively. On the other hand, the biggest downward contribution came from food and beverages (-0.10 p.p), which posted a fifth consecutive month of deflation, thanks to lower prices for milk, tomatoes and beans.

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 0.21% in September, virtually matching the 0.22% increase posted in August. The year-over-year rate decelerated to 3.7% (3.8% yoy in the previous month). The diffusion index (which measures the share of products with positive price changes) widened to 52.0% from 46.4% in August. Seasonally-adjusted total diffusion went up to 54% from 51%.

Our preliminary estimate for the IPCA in October is a 0.40% increase, pushing the year-over-year change to 2.7%. Housing will give the biggest upward contribution during the month, due to hikes in electricity bills and bottled cooking gas. The food group is likely to post a positive change after five months of deflation.

Table 1 – IPCA

 

Elson Teles
Economist



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