Itaú BBA - IPCA up by 0.09% in March and 0.70% in 1Q18

Macro Brazil

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IPCA up by 0.09% in March and 0.70% in 1Q18

abril 10, 2018

Our preliminary estimate for the IPCA in April is a 0.35% increase

The consumer price index IPCA edged up 0.09% in March, somewhat below the median of market expectations (0.12%). The year-over-year change decelerated to 2.68% from 2.84% in February.  Healthcare and personal care (0.06 p.p.) and housing (0.03 p.p.) provided the largest upward contributions during the month. On the other hand, transportation (-0.05 p.p.) and communication (-0.01 p.p.) posted negative contributions. Our preliminary estimate for the IPCA in April is a 0.35% increase, with the year-over-year rate picking up to 2.9%. Our call for 2018 remains at 3.5%.

The IPCA went up 0.09% in March, somewhat below our call (0.11%) and the median of market expectations (0.12%). The index had risen 0.32% in February and 0.25% in March 2017. In 1Q18, the IPCA advanced 0.70% (0.96% in 1Q17), the lowest first-quarter reading in the historical series. The year-over-year change slowed to 2.68% from 2.84% in February.

Market-set prices moved up just 0.04% in March and the year-over-year increase receded to 1.3% (1.4% yoy in February). Regulated prices climbed 0.23% during the month and the year-over-year change slid to 7.1% (7.3% yoy in the previous month). Among market-set prices, costs for food consumed at home fell 0.18% in March and the year-over-year slide sharpened to -4.3% (-3.8% yoy in February); industrial prices rose 0.13% during the month and the year-over-year change reached 1.2% (0.9% yoy in the previous month); service prices moved 0.08% in March and 3.9% yoy (4.2% yoy in the previous month). In the service sector, the 15.4% decline in airfares provided, individually, the largest downward contribution to monthly inflation (-0.07 p.p.). Meanwhile, the underlying service inflation indicator – which excludes items related to tourism, household help, courses and communications – advanced 0.35% in March and its year-over-year change remained at 3.4%.

Breaking down by product groups, the largest upward contributions during the month came from healthcare and personal care (0.06 p.p.) and housing (0.03 p.p.), followed by food and beverages and apparel (0.02 p.p. each). In healthcare, the biggest positive contribution came from health insurance premiums (0.04 p.p.). The housing group had a noteworthy contribution from electricity tariffs (0.02 p.p.). In the food group, positive contributions from fruits (0.05 p.p.), meals consumed away from home (0.05 p.p.) and milk and dairy (0.02 p.p.) more than offset price cuts in other items. On the other end, transportation (-0.05 p.p.) and communication (-0.01 p.p.) gave negative contributions. Airfares provided the most substantial contribution in the transportation group. In the communication group, the decline in landline phone costs reflected slowing calls to mobile numbers.

Core inflation measures also receded from the previous month. The average of the three most used core measures (smoothed trimmed means, double weight core and core inflation by exclusion) rose 0.19% in March (0.30% in February), while the year-over-year rate slid to 3.1% from 3.2%. Meanwhile, the diffusion index (which measures the share of products with positive price changes) widened to 50.4% from 48.5% in February. Seasonally-adjusted total diffusion slipped to 49% from 50% in February.

Our preliminary estimate for the IPCA in April is a 0.35% advance that would push the year-over-year rate up to 2.9%. Inflation should be higher than in March due to the reversal of price cuts for food consumed at home, a faster increase in electricity tariffs, adjustments in medication prices, and vanishing declines for airfares and landline phone tariffs. For the full year, we still estimate headline inflation at 3.5%.

 
 

Table 1 – IPCA



 

Elson Teles
Economist



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