Tag Archives: IPCA

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.

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

Find out what each of the Brazilian Inflation indexes are.

Oct/13 Sep/13 2013 * 2012 12 Months *
IPCA (IBGE) 0,57 0,35 4,38 5,84 5,84
INPC (IBGE) 0,61 0,27 4,25 6,20 5,58
IPCA-E (IBGE) 0,27 3,97 5,78 5,93
IGP-DI (FGV) 0,63 1,36 4,51 8,10 5,46
IPC-DI Core (FGV) 0,41 0,45 4,25 4,81 5,23
IPA-DI 0,71 1,90 4,13 9,13 5,07
IPC-DI 0,55 0,30 4,20 5,74 5,36
INCC-DI 0,26 0,43 7,61 7,12 8,14
IGP-M (FGV) 0,86 1,50 4,58 7,82 5,27
IPA-M 1,09 2,11 4,29 8,63 4,85
IPC-M 0,43 0,27 4,10 5,79 5,22
INCC-M 0,33 0,43 7,53 7,23 8,08
IGP-10 (FGV) 1,11 1,05 4,47 7,42 4,84
IPA-10 1,48 1,46 4,16 8,06 4,25
IPC-10 0,33 0,22 4,13 5,73 5,19
INCC-10 0,44 0,34 7,34 7,05 7,95
IPC (FIPE) 0,48 0,25 2,74 5,10 4,24
ICV (DIEESE) 0,64 0,24 5,11 6,41 6,16
Obs.: IGP-M 1st parcial of nov/13 = 0,30% and IPC-FIPE = 0,55%

 

IPCA, IGP-M, IPC, INCC. How to make sense of Brazilian Inflation indexes?

IPCA (Índice Nacional de Preços ao Consumidor Amplo) – Broad National Consumer Price Index: Equivalent to the CPI in the US. This is the official consumer inflation index. Federal government uses it to set inflation goals. Current target is 4.5% with a margin of 2% higher or lower. The 2.5% – 6.5% IPCA range is targeted by the central bank when defining the interest rate, SELIC. The index is calculated by IBGE (federal geography and statistics institute) and tracks continuous and systematic variations in consumer prices for families with income up to 40 minimum wages. Data is collected in the metropolitan areas of Belém, Recife, Fortaleza, Salvador, Belo Horizonte, Rio de Janeiro, São Paulo, Curitiba, Porto Alegre, Brasilia and Goiânia. Data is collected between the first and last day of the reference month, and is disclosed between the 8th and the 12th of the following month.

 IGP-M (Índice Geral de Preços do Mercado) – General Index of Market Prices: Considered equivalent to the PPI – Producer Price Index, in the US. From Fundação Getúlio Vargas (a private entity), it was created to correct some treasury securities and floating-rate bank deposits with maturities over one year. Later, it started to be used for corrections of contracts such as real estate rent and electricity. Disclosed at the end of the reference month since the collection is made from the 21st of the previous month and the 20th of the month to which it relates. It consists of IPA – Wholesale Price Index (60%), IPC – Consumer Price Index (30%) and INCC – National Index of Construction Cost(10%). Every 10 days, it is disclosed a partial number known as IGP-10.

IPC – aka IPC-FIPE – (Índice de Preços ao Consumidor) CPI – Consumer Price Index: This is the inflation index for the city of São Paulo, largest city in Brazil. FIPE (a foundation linked to USP – University of São Paulo) measures the IPC based on a consumer with income between 1 and 20 minimum wages. The basket of products and services tracked is based on the POF – Household Budget Survey from IBGE, constantly updated. The survey is conducted between the first and last day of the reference month and published between the 10th and 20th of the following month. It is the most traditional cost of living indicator for the families in São Paulo and one of the oldest in Brazil, since January 1939.

INCC-DI (Índice Nacional de Custo de Construção, Disponibilidade Interna) – National Index of Construction Cost, Internal Availability: From Fundação Getúlio Vargas (private entity) in partnership with Caixa Economica Federal (public company), measures the cost of new housing in 18 cities: Aracaju, Belem, Belo Horizonte, Brasilia, Campo Grande, Curitiba, Florianópolis, Fortaleza, Goiânia, João Pessoa, Maceio, Manaus, Porto Alegre, Recife, Rio de Janeiro, Salvador, Sao Paulo and Vitoria. This is one of three items that comprise the IGP – General Price Index, with 10% weight. It is measured between the first and last day of the month and released about 20 days later. There is another number (INCC-M), calculated between day 21 of the previous month and the 20th of the month in reference for the composition of the IGP-M.