Inflation closes 2022 at 5.79% and exceeds the target for the second consecutive year

Official inflation in Brazil, measured by the HICP (National Consumer Price Index), closed 2022 with an accumulated increase of 5.79%, according to data released by the IBGE (Brazilian Institute of Geography and Statistics) this Tuesday. .

With tax cuts on fuel and electricity, the HICP has lost steam compared to 2021, when it had risen by 10.06%.

Despite the truce, prices remain high for Brazilian pockets. For the second consecutive year, the HICP exceeded the inflation target pursued by the Central Bank.

The change of 5.79% also surprised the financial market. Analysts consulted by the Bloomberg agency had expected a more contained maximum, of 5.60%.

The center of the inflation target was 3.5% last year, with a tolerance range of 1.5 percentage points up (5%) or down (2%).

With the final data above this range, BC President Roberto Campos Neto has to write a letter explaining the failure to meet the benchmark. The document is expected to be released this Tuesday.

In December’s monthly change, the HICP accelerated to 0.62%, after rising by 0.41% in November.

The new result also came in above estimates. Analysts consulted by Bloomberg forecast a 0.44% increase in December.

The return of some of the Black Friday discounts in November helps explain the higher result in the last month of the year, economists say.

According to them, projections still suggest high inflation in 2023, which poses a challenge for the government of Luiz Inácio Lula da Silva (PT).

Against a backdrop of fiscal uncertainty with possible spending by the PT administration, financial market institutions have raised their estimates for this year’s HICP.

The expected increase for the cumulative 2023 has gone from 5.31% to 5.36%, according to the latest edition of the Focus bulletin, released by BC on Monday (9).

If the projection is confirmed, 2023 will mark the third consecutive break of the inflation target. The center of the target has been set at 3.25% for this year. The tolerance range, again, is 1.5 percentage points up (4.75%) or down (1.75%).

Considering the entire Jair Bolsonaro (PL) government, from 2019 to 2022, the accumulated increase in the HICP was 26.93%. The calculation was made by the economist Bruno Imaizumi, of LCA Consultores.

Economist Luca Mercadante, of Rio Bravo Investimentos, assesses that the country is going through a period of “very pressured inflation” and says that the increase in interest rates promoted by the Central Bank has not yet managed to completely control the increase of prices.

Rio Bravo recently raised its forecast for the 2023 HICP from 5.2% to 5.4%.

“Fiscal worries are gaining strength. This causes inflation expectations to deteriorate,” Mercadante said.

According to the economist, the recovery in demand for services, after the restrictions due to the pandemic, is another factor challenging the HICP lull this year.

Food goes up, gasoline goes down

The high the official index accumulated in 2022 (5.79%) was driven by the food and beverage group, the IBGE pointed out. The segment grew 11.64% over the year.

Consequently, it had the greatest impact on the HICP (2.41 percentage points) among the nine groups examined.

Marcos de Oliveira Julio, 38, has had to adjust his routine to cope with inflation. The São Paulo resident has reduced his meat consumption and replaced products in search of cheaper prices at the supermarket.

“Inflation is putting a stop to plans,” says Julio, who works as a video editor and has been living with his girlfriend since February 2022.

“As we put it all to the tip of the pencil, we paid the rent and saved some of the money to buy our own property. But that money has been eaten away,” she complains.

Unlike food & beverage, the transportation group saw a price decline in 2022. The decline was 1.29%, the steepest among the segments surveyed.

Thus, transport accounted for the main negative impact on the HICP (-0.28 percentage points). The decline of the group can be largely explained by petrol, which fell by 25.78%.

Individually, the product was responsible for the strongest negative influence (-1.70 percentage points) among the 377 HICP sub-items.

Gasoline prices fell due to reductions in refineries and the implementation of the law limiting the collection of ICMS (state tax) on fuels, the IBGE noted.

This tax cut also affected services such as residential electricity, which decreased by 19.01% in 2022.

Inflation would be higher without tax cuts

In one simulation, if petrol and electricity had been removed from the HICP calculation, the index would have risen by 9.56% last year, not 5.79%, says André Almeida, analyst at IBGE .

The increase in food and beverages, in turn, mainly reflects the high price of food delivery (13.23%).

The highlights were onions, which increased by 130.14%, the largest change among the 377 HICP sub-items, and long-life milk (26.18%).

In transport there is an increase in registrations and licenses (22.59%). This was the sub-item with the greatest individual influence (0.49 percentage points) for HICP progress in 2022, the IBGE pointed out.

The institute noted that the increase in IPVA is associated with rising car prices in 2021, as the charge is based on the market value of vehicles at the end of the previous year.

Among the groups, clothing was the one that recorded the most intense price variation last year: 18.02%. It was the largest increase in the segment since December 1994, according to the IBGE.

“When we look at the closed data for 2022, we see that market price inflation has increased a lot, but it has been partially offset by administered prices in negative territory. Electricity has gone down, petrol has gone down a lot,” analyzes the economist Júlia Passabom, of Itaú Unibanco .

The institute expects an HICP of 5.7% in 2023. In the near term, Passabom says, there is an upward bias in the projections due to two factors: the surprise with December inflation and the increase in prices of the gasoline at the beginning of the year.

For all of 2022, the HICP reached 12.13% in the accumulated 12 months to April. The loss of momentum in subsequent disclosures has been driven by tax cuts on items such as fuel.

The index experienced three consecutive months of deflation (fall), from July to September. The tax cut came amid Jair Bolsonaro’s (PL) re-election plans, which ended up frustrated by his defeat at the polls against Lula.

Meanwhile, food prices continued to feel the effects of adverse weather and the war in Ukraine, which pushed up the prices of agricultural commodities.

According to the IBGE, the food and beverage group accounted for 21.86% of the HICP as of December 2022. It carries the largest weight among the segments that make up the index, above transportation (20.52%).

In December 2021, the order was cancelled. Transportation had the greatest weight (21.92%), followed by food and beverages (20.69%).

The change reflects rising food prices and falling fuel prices over the past year.

Banco Original expects an HICP of 0.60% in January 2023, plus the impact of 0.6 percentage points from a return to the collection of PIS and Cofins on gasoline, distributed between the months of March and April. In this year’s accumulated result, the bank expects an HICP of 5.8%.

INPC closes 2022 at 5.93%

The IBGE also reported on Tuesday that the INPC (National Consumer Price Index) closed 2022 with an accumulated increase of 5.93%, below 2021 (10.16%).

The INPC is used as a reference for the correction of benefits such as the pension. The indicator reflects the prices of goods and services with a greater weight in the consumption of low-income households (between one and five minimum wages).

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