Deflation continues in August in Brazil, while Argentina points to inflation above 6%

FILE PHOTO: A worker uses a gasoline pump at a service station of Brazilian oil company Petrobras in Brasilia, Brazil March 7, 2022. REUTERS/Adriano Machado/File Photo

The inflationary gap between the main Mercosur partners remained in the first half of August: while Brazil registered a fall of 0.7%, in Argentina prices grew by around 6% in the same period.

The Ministry of Economy expects that this month inflation will show a very high record again, consistent with the three-digit projection of several consultants for this year.

As reported, Brazil recorded monthly consumer price deflation in mid-August; The IBGE statistics agency specified that the deflation was based on tax cuts on key products and with a central bank that maintained its aggressive monetary tightening strategy. The secondary effect is an increase in the fiscal deficit and a slowdown in economic growth, projected at 1.6% for this year by ECLAC, compared to 3.5% for Argentina.

In this way, the IPCA-15 consumer price index for Brazil fell by 0.73% in the period, “maintaining the downward trend already observed in the data for the full month of July”, published at the beginning of August. Last month’s was the lowest rate on record since inflation measurements began in mid-November 1991, though economists surveyed by Reuters they expected an even bigger drop, of 0.81%.

Brazil’s monthly price drop came as transportation prices continue to fall due to a federal law that “reduced taxes on fuel and amid new price cuts by state oil company Petrobras,” the sources reported. international agencies. Thus, in the 12 months to mid-August, inflation hit 9.6%, versus market expectations of 9.5%Reuters indicated.

The reduction of taxes and the rise in rates sustain the drop in prices that began in July in Brazil

Itaú bank stated that “industrial prices continue to show signs of slowing down, while services continue to be high (but without additional surprises on the margin). The core IPCA for services and industry (EX3) remained stable at a high level, while the diffusion index fell to 65.1%. The data is consistent with our reading of gradual disinflation in the coming months. Our forecast for the IPCA in 2022 remains at 7 percent.”

“The result continued to show the effects of tax cuts on administered prices, especially electricity and gasoline, which showed another month of deflation. The latter was also affected by the gasoline cutbacks announced on 7/20 and 7/29. Regarding the prices set by the market, home food continued to show a positive variation, explained by the increase in the prices of meat and milk. This last item already shows signs of relief at the margin and should contribute to the deflation of the food group in the coming months,” Itaú said.

The perspectives of Argentina

Meanwhile, the IPC GBA of the consulting firm Ecolatina “showed a growth of 6.3% between the first half of August and the same period in July, decelerating 1.6 percentage point with respect to said record (+7.9%). However, in year-on-year terms it accelerated, going from showing an increase of 67.8% in the first half of July to 74.1% in August”.

    The Ecolatina IPC grew 6.3% in the first half of August
The Ecolatina IPC grew 6.3% in the first half of August

In particular, “The chapters with the greatest evolution were Equipment and home maintenance (+8.4%) and Medical care and health expenses (+7.8%). On the contrary, Dress it only increased 0.9%, although its interannual variation reaches 83.8%”.

In the field of Food and drinks the increases were widespread and the indicator grew above the general level (+7.2%), being the chapter with the greatest impact on the general result (explaining 58% of the total variation in the period). Inside, the variations in Vegetables (+17.7%), Sugar, honey, sweets and cocoa (+13.7%), Videos (+10.4%), infusions (+7.5%) and Dairy products and eggs (+7.3%)”.

In the regulated prices sector, the rise was 6.4%, “driven by increases in Health systems and ancillary services (+11.5%) and due to the new fares on buses and trains. For its part, seasonal recorded 3.9%, moderated by the fall in the prices of sightseeing (-7.2%). Lastly, the IPC Core -which excludes Regulated and Seasonal- registered 6.6% (+76.5% year-on-year). This high record (above the average) shows the existence of a strong inflationary inertia that will not vanish in the immediate future”.

Inflation of 53% in 8 months

According to Ecolatina, “a greater exchange rate slippage, together with the aforementioned inertia and the specific impacts of the 40% increase in buses and trains in the AMBA and the round of price updates planned in prepaid (+11.3%) and expenses (+8% on average) would take the August index to around 6.2% (+74.6% year-on-year). In this way, prices would accumulate more than 53% in the first eight months of the year”.

Ecolatina estimated that inflation for the month will be 6.2%, 53% since January and 74.6% in the last year

“Looking ahead to the coming months, the lack of a robust anchor to stabilize expectations, adjustments in rates, reopening of parity and a sustained drag pin will contribute to a greater persistence of the inflationary phenomenon. Even estimating a deceleration in the last five months of the year, which could park in the area of ​​5% per month, we project that inflation would close the year with a floor of 90%”, he warned.

For LCG in the first 3 weeks of this month the price increase accumulates 5.9%. “We hope that it will have a floor of 6% in the general of August”, specified the director of LCG, Guido Lawrence.

While, for EcoGothe survey corresponding to the third week of the month registered a variation of 1.6% in food prices with respect to the previous week. This implies an acceleration of 0.1 percentage points in the margin”.

The ECO GO Inflation Projection
The ECO GO Inflation Projection

“With this data and considering a weekly variation projection of 1.4% for the last week of the month, the inflation of food consumed at home in August would climb to 5.7% monthly”, indicated the study that directs Marina DalPoggetto.

Among the foods “the meats seem to recover and after several days without exceeding 1% weekly increase, they registered an increase of 1.7%: while red meats were moderate with an increase of 1.1%, cold cuts and fish drove the indicator with increases 5.3% and 4.5% respectively”; Meanwhile, fruits “experienced a rise of 3.9% driven by the strong rise in the citrus component (12.5%).

The price of meat continues to rise (Reuters)
The price of meat continues to rise (Reuters)

Vegetables, on the other hand, exhibited a considerably more moderate increaseand they were located at 0.3%”. In turn, the category of beverages “recorded this week a rise of 2.2% driven by the increase in other alcoholic beverages (5.7%) and soft drinks (4.9%) and so far this year , the item accumulates a rise of 53.2%, slightly below the general inflation in food”.

At a general level, “the inflation figure for August would be 6.7%, 0.2 percentage points higher than expected last week. This is due to a more precise survey of the different chapters that make up the RPM (where projected increases in segments such as Health, Transportation and Communications and Leisure stood out) and a higher than expected rise in the price of food”.

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