Inflation may drop to 3.5% in June, but will close the year above the target ceiling – 04/11/2023

In March, inflation entered the period of greatest decline expected for 2023. From now until June, both due to the reduction in the monthly index and the drop in the accumulated over 12 months, forecasts indicate that price increases will record a strong downward trend.

According to forecasts, in June inflation could drop to close to 3.5%, accumulated in 12 months. From July, however, it would rise again, but moderately, closing 2023 with an increase of around 5.8%, above the ceiling of the target for another year. In the Focus Bulletin, the median of the updated projections indicates a variation closer to 6% in 2023.

The center of the target for 2023, which should be pursued by the Central Bank, with its interest rate policy, is an inflation of 3.25%, with a tolerance interval between 1.75% and 4.75%.

Shuttle in the accumulated in 12 months

These projections of a drop in inflation for the coming months are reinforced by the also low results of the IGP (General Price Index), which has the IPA (Wholesale Price Index) as its most important component. Wholesale prices tend to be passed on to consumer prices later on, and are currently in a deflationary phase.

Forecasts point to an increase of just 1% in wholesale prices in 2023, with the IGP advancing only 2.5% in the year.

With a variation of 0.71% in March, the IPCA (Extended Consumer Price Index), released this Tuesday, shows an increase of 2.09% in the first quarter of the year, and of 4.65%, in the accumulated 12 months. As a result, inflation temporarily entered the tolerance range of the target system, whose ceiling, for 2023, is an increase of 4.75%.

This more intense swing of the index in 12 months is explained by the difference between the monthly inflation indices of this year and last year. In March 2022, for example, the IPCA advanced 1.62%. The replacement by a smaller index makes the accumulated value in 12 months retreat.

From July to September 2022, the IPCA presented deflation, which will not occur in 2023, although the monthly variation should not, according to forecasts, exceed 0.5% in any month of the rest of the year. Thus, from July to December, even with relatively well-behaved monthly indices, the 12-month variation of the IPCA should register an upward trajectory, in relation to the first semester.

The price variation, in March, measured by the IPCA, was caused mainly by increases in administered prices, in the case of gasoline and electricity. With an increase of 8.33%, gasoline alone, whose prices still reflect the return of tax collection, accounted for more than half of last month’s inflation.

Falling food prices

The three biggest price increases in March occurred in the following groups, which accounted for around 90% of the month’s inflation:

Transport – 2.11%

Health and personal care – 0.82%

Housing – 0.57%

Food, especially at home, on the other hand, has shown a downward trend. In March, the group’s price variation was close to stability, with an increase of 0.05%. In 12 months, the increase was 7%, a significant decrease when one remembers that, in July 22, food at home registered an increase of 17.5%.

This decline in the food group is more evident in the INPC (National Consumer Price Index) for March, which rose 0.64% in March and accumulated a 4.36% change in 12 months. Unlike the IPCA, which measures the variation in the consumption basket of people with income between 1 and 40 minimum wages, the INPC restricts the focus to consumers with income between 1 and 5 minimum wages, in whose budget the weight of food is proportionally higher .