HomeBRAZILSHARP DROP IN FUEL PRICES DRAGS INFLATION INDEX FOR AUGUST TO THE...

SHARP DROP IN FUEL PRICES DRAGS INFLATION INDEX FOR AUGUST TO THE LOWEST POINT IN 24 YEARS

On Friday (09/09), the Brazilian Institute of Geography and Statistics (IBGE) announced that the Broad National Consumer Price Index (IPCA), considered the country’s official inflation, fell by 0.36% in August. This is the lowest index for a month of August in 24 years. As a result, the country registered deflation for the second consecutive month. Again, the drop was mainly influenced by the retraction in fuel prices.

Accumulated Results

In the year, the IPCA accumulates a high of 4.39%. In the last 12 months, the increase is 8.73%, the lowest since June 2021 (8.35%). In the 12 months immediately preceding, the increase had been 10.07%.

Main Drivers

As in July, deflation came mainly from the fall in the Transport group (-3.37%), which contributed -0.72 percentage point to the index for the month. The highlight comes once again from the drop in fuel prices (-10.82%). According to the IBGE, in August, the prices of the four fuels surveyed dropped: vehicular gas (-2.12%), diesel oil (-3.76%), ethanol (-8.67%) and gasoline (-11.64 %).

Fall in Food and Energy Prices, Increase in Industrialized Products

With the fall in commodities prices, food tend to fall too. However, the country will still suffer from strong pressure from the prices of industrial goods, and services.

Inflation Target

Defined by the National Monetary Council (CMN), the inflation target for 2022 is 3.5% and will only be considered formally fulfilled if it fluctuates between 2% and 5%. The Central Bank (BC) has already officially admitted, however, that the inflation target will be missed in 2022 for the second year in a row. The current projection of the financial market is an IPCA of 6.61% in 2022.

Socioeconomic Risk

International and national factors that appeared after the worst periods of the pandemic had been pushing inflation to high levels in Brazil. The scenario associated to other phenomena, such as high unemployment rates and growing hunger among the poor, led to an increased socioeconomic risk, with threats of generalized strikes and protests. The positive results for the inflation rate can reduce tensions and reduce chances of these problems occurring. However, as much of this relief is a consequence of the government spending more with social programs and with the suspension of state taxes on flues, there is a chance that in 2023, when these incentives are over, things may get worser.

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