Itaú BBA - IPCA rises 0.19% in August, below the floor of expectations

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IPCA rises 0.19% in August, below the floor of expectations

September 6, 2017

For September, our preliminary estimate for the IPCA shows a 0.25% increase

The IPCA recorded a 0.19% increase in August, below the floor of market expectations. As a result, the index is up by 1.62% year-to-date, with the year-over-year variation decreasing to 2.46%, compared to 2.71% in the previous month. The main upward contribution in the month came from fuels (0.32 p.p.), reflecting the tax increase on gasoline, ethanol and diesel, in effect since July 20. On the other hand, the food group posted a negative variation for the fourth consecutive month, with a contribution of -0.27 p.p. For September, our preliminary estimate for the IPCA shows a 0.25% increase, leading the year-over-year rate to 2.6%. The main upward contribution in the month will come from the transportation group once more, with highlight to the pressures from fuels and airfare.

The IPCA posted a 0.19% increase in August, below the floor of market expectations (0.20%, median at 0.30%). The largest deviations from our estimate (0.32%) came from regulated prices and food consumed at home. The IPCA posted a variation of 0.24% in the previous month and 0.44% in August 2016. Year-to-date, the index gained 1.62%, well below the 5.42% posted in the same period last year. The year-over-year variation declined to 2.46% (compared to 2.71% in July), the lowest result since February 1999.

Market prices posted a -0.32% variation in August, with the year-over-year change receding to 1.3% (compared to 2.1% in the previous month), while regulated prices rose 1.73%, with the year-over-year change advancing to 6.3% (4.7% in the previous month). About 80% of the regulated prices result is explained by hikes in gasoline and electricity. Among market prices, food consumed at home fell by 1.84% in the month, with the year-over-year change receding from -3.1% to -5.2%; industrial prices –pressured by higher ethanol prices – rose by 0.26%, with the year-over-year variation falling from 0.9% to 0.7%; and services – given a 15.2% drop in airfare prices – changed by 0.01% only, with the year-over-year variation falling from 5.4% to 4.8%. In turn, the underlying service inflation indicator – which excludes items related to tourism, household help, courses and communication – varied by 0.21%, with the year-over-year change narrowing from 4.5% to 4.3%.

Breaking down by product groups, the main upward contribution came from transportation (0.27 p.p.), followed by housing (0.09 p.p.). In the transportation group, the largest contribution came from fuels (0.32 p.p.), reflecting the tax hikes (PIS/Cofins) on gasoline, ethanol and diesel, in effect since July 20. In the housing group, the main contribution came from electricity (0.07 p.p.), largely reflecting the activation of the red flag in the tariff flag system, early in the month. On the other hand, the main downward contribution came from food and beverages (-0.27 p.p.), with highlight to the lower prices for beans, milk, meats, sugar and fresh fruits and vegetables.

As for core inflation measures, the average of the three most used ones (smoothed trimmed means, double weight core and core inflation by exclusion) reached 0.22% in August, from 0.25% in the previous month. As a result, core inflation declined to 3.8% year-over-year (compared to 4.1% in July). The diffusion index – which measures the share of products with positive prince changes – rose to 46.4% (compared to 41.8% in the previous month). Seasonally-adjusted, the diffusion indicator increased from 47% to 50%.

Our preliminary estimate for the IPCA in September shows a 0.25% change, leading the year-over-year rate to 2.6%, from 2.5% in August. The main upward contribution in the month will come from transportation, with highlight to the pressures from fuels and airfare. On the other hand, we anticipate the food group posting another negative variation, its fifth consecutive decline.

Table 1 – IPCA


 

Elson Teles
Economist


 

 



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