Tag Archives: IPCA

Economists reduce Brazil inflation forecast for 2017 and the next 12 months

Market economists reduced their estimate for inflation by the Broad Consumer Price Index (IPCA) in 2017 and in the next 12 months, according to the average forecast in the Focus Bulletin, released on Monday by the Central Bank (BC) .

For this year, inflation bets were reduced from 3.03% to 2.88%, below the floor of the target for the calendar, of 3%. The center of the inflation target is 4.5%. In 12 months, the projection for the advance of prices increased from 3.96% to 3.91%. For 2018, the estimate was maintained at 4.02%.

Last Friday, the Brazilian Institute of Geography and Statistics (IBGE) reported that the IPCA slowed the rise to 0.28% in November, after rising 0.42% a month earlier.

The average estimate for economic growth had a new round of upward adjustments after the IBGE revised positively the Gross Domestic Product (GDP) figures for the first and second quarters of this year. Thus, the projections went from expansion of 0.89% to 0.91% in 2017 and advance from 2.60% to 2.62% in 2018.

For the basic interest rate, Selic, at the end of 2018, the projections were maintained at 7%

IPCA inflation index slows down in November, according to IBGE

Inflation measured by the National Extended Consumer Price Index (IPCA) slowed to 0.28% in November, from 0.42% in October, the Brazilian Institute of Geography and Statistics (IBGE) reported Friday.

In the same month of 2016, the increase had been of 0.18%. Therefore, official accumulated inflation accelerated in 12 months: from 2.70% in October to 2.80% in November, according to the institute.

The IPCA in November was below the average of 0.35% estimated by 27 consultancies and financial institutions. The range of projections was from 0.31% to 0.47%. For the accumulated 12-month period, the expectation was of an increase of 2.88% in the prices

In the 11 full months of the year, the IPCA accumulated a rise of 2.50%, the lowest inflation for the period since 1998 (1.32%). Thus, with just one month remaining in 2017, inflation is below the target floor of 3% – the center is 4.5%, with a margin of 1.5 percentage points up or down.

Brazilian Economy shrinks 0.51% in May, according to the Central Bank

The Brazilian economy has not confirmed the brief improvement in April. The Economic Activity Index Central Bank (IBC-Br) fell 0.51% in May, after growing 0.07% in April (revised), which was the first increase in 15 months. In the year, the decline was a significant 5.79%.

In the 12 months ending in May, the IBC-Br indicates a decrease of 5.43% in the series without adjustment and 5.51% in the adjusted data. Due to the constant indicator review, the IBC-Br measured for 12 months is more stable than the monthly measurement. Compared with May 2015, there was a low of 4.91% in the series without adjustment and 5.32% with adjustment.

The results came worse than expected by the market players. The average of forecasts made by 21 financial institutions suggested a decrease of 0.24% in the month. Estimates ranged from a decrease of 0.9% and increase of 0.1% for the monthly variation.

In the June Inflation Report, the central bank projected a drop of 3.3% in the GDP for 2016, against the previous forecast of a 3.5% decline. Analysts consulted for making the Focus Bulletin also point to a decrease of 3.3% for the Brazilian economy this year.

EWZ: Ibovespa has its best semester since 2009 and US$ drops 18.6% versus the Brazilian Real

Brazilian’s most traded stock ETF in the US, EWZ soared 46.5% in the same 6 months:

EWZ-6-Months

In the beginning of the year, the perspective for the Brazilian market was not good with the country in recession and inflation sky rocketing. However, in the middle of February, the inflection started fueled by a global recover in commodities prices and an improvement in the expectations for the economic policies, which became known as the impeachment rally.

Besides, the downside event of the semester, the Brexit, was followed by an unexpected help which were the speculations that central banks all over the world will stimulate their economies to face market volatility. On Friday, the president of England’s central bank, Mark Carney, said that the growth in the UK will slow down in the next months and additional interest rate cuts and other measures of monetary ease will be necessary.

Sure, Brazil is not out of the woods yet and the new government still has lots to do to recover the economy. However, the better economic climate has started to translate into improvements in the confidence:

Consumer and Industry Confidence in Brazil

Besides the more favorable political environment, what is also helping in this confidence growth is the fact that some economic indicators are improving, albeit still very bad: IBC-Br, Industry and Services.

Brazil’s Inflation Unexpectedly Slows as Recession Bites

Brazilian inflation unexpectedly slowed last month, beating forecasts from all analysts surveyed by Bloomberg, as food prices rose less than in the previous month amid a deepening recession.The benchmark IPCA inflation index moderated to 0.96 percent in December from 1.01 percent in November, the national statistics agency said Friday. That compares to the median 1.05 percent estimate from economists surveyed by Bloomberg.

“It’s good news in the near-term, but not something that shows clearly that core prices will be trending down,” Carlos Kawall, chief economist at Banco Safra, said about slowing inflation. “The fact that it came mostly from food prices doesn’t show that we can celebrate this.”

Brazil missed its 2015 target as annual inflation accelerated to 10.67 percent, the fastest for a full year since 2002 and more than double the midpoint of the official target range of 2.5 percent to 6.5 percent. As a result, central bank President Alexandre Tombini had to publish an open letter to the government explaining why he fell short.

Inflation isn’t expected to fall within range this year either, even as the deepening recession and higher borrowing costs chip away at Brazilians’ purchasing power. Leading economists forecast policy makers will redouble efforts to contain consumer prices by embarking on a new round of monetary policy tightening as early as this month.

Traders agree, as swap rates on the contract due in April 2016 rose 2 basis points to 14.66 percent on Friday. The real strengthened 0.5 percent to 4.0248 per U.S. dollar amid improved appetite for emerging-market assets. It dropped 33 percent last year, the worst performer among all 31 major currencies tracked by Bloomberg after the Argentine peso.

The real’s depreciation fueled inflation last year, as did the rising price of government-regulated items, Tombini wrote in his open letter to Finance Minister Nelson Barbosa. He reiterated his commitment to reach the 4.5 percent target in 2017, while Barbosa said in a statement that the government would contribute with fiscal policy and measures designed to boost productivity.

“No matter what happens with other policies, the central bank will adopt the measures needed to meet the target,” Tombini wrote.

Banco Safra’s Kawall expects a 150 basis-point tightening cycle this year, starting in January. Higher interest rates would be a bitter medicine for an economy headed to a deep two-year recession, forecast to be the worst since at least 1901. Fearing more job losses, members of President Dilma Rousseff’s Workers’ Party have publicly opposed additional increases to borrowing costs. December data strengthens the case for holding off, according to Enestor dos Santos, principal economist at BBVA.

“We should be more patient and wait for more data, but in my view it takes some pressure off the central bank,” Dos Santos said. “Inflation peaked in December and it will start to decline from January. I think this would not be the best moment for the central bank to tighten monetary policy.”

Deeper Recession

The central bank has held the Selic rate at a nine-year high even as Brazil’s recession deepened. The slump contributed to slower price increases for food and beverages as well as housing. The biggest single contributor to inflation in the month was the price of airfare, a volatile component that rose 37.07 percent.

A rate increase at the January meeting of the monetary policy committee known as Copom isn’t a foregone conclusion, with banks including BBVA and Banco Fibra expecting no change. Higher borrowing costs would hurt investment more than contain inflation, and Brazil should instead consider raising its inflation target, Workers’ Party President Rui Falcao said in a Dec. 28 interview.

“Any dovish decisions in the next Copom meetings will spur market suspicion that the central bank is facing greater political interference, even if technical reasons for a more moderate approach exist,” Chris Garman, managing director at political consultancy Eurasia Group, wrote in a note before the release of the data.

Central Bank in Brazil Forcasts 2016 Inflation Above Target Ceiling

While there was a consensus among financial analysts that consumer inflation in Brazil would top ten percent this year, the latest report by the Central Bank (CB) shows that analysts’ forecasts for 2016 inflation are also above the target limit of 6.5 percent. According to financial institutions surveyed by the CB for its Focus Report, inflation in 2016 is likely to reach 6.64 percent.The Focus Report, released by the Central Bank on Friday shows that forecasts for the 2015 inflation increased for the 10th consecutive time, going from 10.04 percent to 10.33 percent. Now, according to the BC inflation is only expected to fall within the target range in 2017.

This is the first time analysts have forecast inflation above the government target for 2016. If analysts’ forecasts are confirmed for this year and next year, it will be the first time official inflation is registered above the target ceiling for two consecutive years since 2002-2003.

According to the government’s system the center of inflation target is 4.5 percent, with a two percent tolerance in each direction, so that consumer inflation falling anywhere between 2.5 percent and 6.5 percent is considered within the target.

Consumer inflation is one of the indexes taken into consideration by the CB’s Monetary Policy Committee (COPOM), when deciding the benchmark interest rate (SELIC). According to financial analysts surveyed by the CB for the Focus Report, the SELIC which has been increased for the past seven consecutive meetings, is likely to remain stable during the upcoming Committee meeting this week, at 14.25 percent. This will be the last meeting of the COPOM this year.

Other indexes, like the IPCA (Consumer Price Index) in Brazil, rose by 0.82 percent in October, and according to the IBGE (Brazilian Statistics Bureau) it the highest inflation for the month since 2002. In this index the inflation rate now accumulates an increase of 8.52 percent for the first ten months of the year, the highest for the period since 1996.

Copom raises interest rate in 0.5% to 14.25% per year and indicates an stable rate in the near future

As expected by the majority of the economists, the decision of the Central Bank was to raise the SELIC to 14.25% per year. The 0.5% increase is the seventh in the tightening cycle started last october.

The raise was expected because the inflation is currently at the dangerously high levels, with the IPCA, the official inflation index at 8.89% inflation accumulated in the last 12 months. The reduction in the fiscal saving target from 1.1% of the GDP to 0.15% announced last week left the hard part of the inflation combat to the monetary policy.

The monetary committee indicated, however, that the SELIC will probably remain at this level in the next meetings. “The committee understands that the maintenance of this level for the interest rate benchmark for a period long enough is necessary to bring the inflation the the target at the end of 2016”, said the central bank in its note. The Brazilian inflation target is 4.5% per year plus or minus 2%, so from: 2.5% to 6.5%.

Disposable Income Drops 10% in 6 months in Brazil

The combination of high inflation with layoffs and wage loss caused a downturn of unprecedented proportions in disposable income for consumption in Brazil. The Monthly Employment Survey (PME) of IBGE shows that real wages decreased by 10% between November 2014, peak of recent years, and last May. In the crisis of 2003, a decline of this magnitude happened after eight months of deterioration in the labor market. In the 2009 crisis, despite the recession, there was no drop in payrolls of this magnitude.

The decline is highlighted in part because of the seasonality for jobs. November is traditionally a strong month in terms of jobs created for the end of the year. Adjusting for seasonality, the drop indicates a nominal income 4.7% lower. In this series, the largest and only previous loss (considering the clipping six months) was 2.8% between April and October 2003.

While some of the effects of this drop in disposable income is already affecting the economy, the spiral effect that it can cause is probably just starting and will affect the Brazilian economy more heavily in the second half and into 2016.

COPOM raises Selic, Brazilian interest rate, to 13.75% per year, highest since December, 2008

The Brazilian committee for monetary policy (COPOM) has raised the interest rate benchmark by 0.5% to 13.75% per year. The decision was unanimous and came without a direction indication and in line with expectations. Therefore, Selic is back to the level of december 2008.

In the note released with the decision, the committee suggests that it did not finish the credit tightening cycle, since it’s maintaining the text used since January: “Evaluating the macroeconomic scenario and the perspectives for the inflation, COPOM has decided to raise the Selic”.

Now, the analysts debate if in the next meeting in July, the rate of 0.5% increase will be maintained, if it will drop to 0.25% or even if the cycle may be extended until September. A better understanding of this direction will probably be possible after the minutes release Thursday of next week.

The real interest, when discounted the inflation, is at 7.3%. This same index was 2.4% in April, 2013.

COPOM is clearly trying to show to the markets that this time, its search to take the inflation back to 4.5% by the end of 2016 is real. Brazil has damaged its credibility in the last few years after continuous spending deficits and a monetary policy lenient to higher inflation.

Central bank’s job of controlling the inflation may be “helped” by a stronger than expected cooling of the economy. Unemployment rate has reached 8% in May. The cooling in the economy could take some of the pressure off of the prices.

Brazil Inflation

Below you will find the main Brazilian inflation indexes in the recent months, as well as the accumulated in the last two years and in the last 12 months.

Wondering what each of indexes mean? Find out what they mean here. Or find more about the perspective for the Brazilian Inflation and interest rate moving forward

nov/17 oct/17 Acumulated in
2017 * 2016 12 meses *
IPCA (IBGE) 0,42 2,21 6,29 2,70
INPC (IBGE) 0,37 1,62 6,58 1,83
IPCA-15 (IBGE) 0,32 0,34 2,58 6,58 2,77
IPCA-E (IBGE) 1,90 6,58 2,56
IGP-DI (FGV) 0,10 -1,94 7,18 -1,07
Núcleo do IPC-DI (FGV) 0,24 2,59 6,76 3,44
IPA-DI -0,03 -4,57 7,73 -3,53
IPC-DI 0,33 2,64 6,18 3,16
INCC-DI 0,31 3,85 6,13 4,38
IGP-M (FGV) 0,20 -1,91 7,17 -1,41
IPA-M 0,16 -4,37 7,64 -3,86
IPC-M 0,28 2,54 6,25 3,01
INCC-M 0,19 3,59 6,35 4,15
IGP-10 (FGV) 0,24 0,49 -1,31 6,95 -1,11
IPA-10 0,21 0,67 -3,58 7,30 -3,37
IPC-10 0,32 0,18 2,94 6,44 3,03
INCC-10 0,30 0,11 3,83 5,84 4,15
IPC (FIPE) 0,32 1,42 6,54 2,30
ICV (DIEESE) 0,88 2,01 6,15 2,41