Itaú BBA - IPCA rose 0.14% in April; year-over-year change slides to 4.1%

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IPCA rose 0.14% in April; year-over-year change slides to 4.1%

May 10, 2017

Our preliminary estimate for the IPCA in May stands at 0.50%.

The consumer price index IPCA rose 0.14% in April, in line with the median of market expectations. Hence, the index is up by 1.10% year-to-date and the year-over-year change decelerated to 4.08% from 4.57% in March. Food and beverages, and healthcare and personal care provided the largest upward contributions during the month. Meanwhile, housing provided the largest downward contribution, as electricity tariffs were reduced to compensate consumers for an undue charge related to the Angra III nuclear power plant. Our preliminary estimate for the IPCA in May stands at 0.50%, pushing the year-over-year change down further to 3.8%. Housing will likely cause the most upward pressure, as the Angra III effect is reversed, prompting electricity bills to increase 10%, on average, causing an impact of 0.32 p.p. on monthly inflation.

The IPCA increased 0.14% in April, in line with our call and the median of market expectations (both at 0.15%). The index had risen 0.25% in March and 0.61% in April 2016. Year-to-date, the IPCA climbed 1.10%, down significantly from 3.25% in the year-earlier period. The year-over-year change in headline inflation slid to 4.08% (the lowest reading since July 2007, according to census bureau IBGE) from 4.57% in March.

Market-set prices advanced 0.37% in April and the year-over-year rate slipped to 4.0% (4.3% yoy in March). Regulated prices fell 0.60% and the year-over-year change slowed to 4.2% (5.6% yoy in the previous month). Electricity (-0.91 p.p.) and gasoline (-0.28 p.p.) provided the largest downward contributions to the regulated component. Among market-set prices, food consumed at home increased 0.68% during the month, but the year-over-year change receded to 2.5% (3.0% in March); industrial prices dropped 0.03% during the month and the year-over-year change slid to 2.3% (from 2.5%); service prices climbed 0.49% in April and the year-over-year change receded to 5.9% (from 6.0%). The underlying service inflation indicator – which excludes items related to tourism, household help, courses and communications – rose 0.28% in April and the year-over-year change decelerated to 5.0% (5.3% yoy in the previous month).

Breaking down by product groups, the largest upward contributions during the month came from food and beverages (0.15 p.p.), and healthcare and personal care (0.12 p.p.). In the food group, the largest upward contributions came from the tubercles, roots and legumes – particularly tomatoes and potatoes –, and food consumed away from home. In the healthcare group, the largest upward pressures came from medication and health insurance premiums. On the other hand, the housing group provided the largest downward contribution (-0.17 p.p.), following the reduction in electricity bills. The 6.4% decline in electricity bills during the month (impact of -0.22 p.p.) comes after an undue charge tied to the Angra III power plant, which more than offset the impact of the red mode triggered in the tariff flag system early in the month. Transportation and household items provided small negative contributions (-0.01 p.p. each). In the transportation group, the biggest relief to monthly inflation was provided by the drop in fuel prices (-0.10 p.p.).

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 0.26% in April, after climbing 0.31% in March. Thus, the year-over-year rate decelerated to 5.2% (5.6% yoy in the previous month).The diffusion index (which measures the share of products with positive price changes) widened to 60.6 from 55.8% in March. Seasonally-adjusted total diffusion increased to 60% from 53%.

Our preliminary estimate for the IPCA in May stands at 0.50%, prompting another decline in the year-over-year change to 3.8%. The housing group will account for nearly ¾ of the increase, as electricity bills will rise due to the reversal of the Angra III effect, which had prompted a temporary drop in the item in the previous month.


 


 

Table 1 – IPCA


 

Elson Teles
Economist


 

 



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