IPCA falls in August, and 12-month inflation is below 10%

With the impact of fuels, the IPCA (Extended National Consumer Price Index) registered deflation (fall) of 0.36% in August, informed this Friday (9) the IBGE (Brazilian Institute of Geography and Statistics).

It is the second consecutive decline in the country’s official inflation index – the low had been 0.68% in July. Analysts had forecast a drop of 0.40% in August, according to the Bloomberg agency.

With a new truce, the IPCA returned to single digits in the 12-month period. The high reached 8.73% until August, after 10.07% until July. On this basis of comparison, the advance was above 10% since September 2021 – 11 months of disclosure, or almost a year.

Such a long streak has not occurred since the 2002-2003 interval. At the time, the index remained above 10% for 13 consecutive months, from November 2002 to November 2003.

Even with the loss of strength, the IPCA is heading towards bursting the inflation target pursued by the BC (Central Bank) for the second consecutive year. In 2022, the center of the benchmark measure is 3.50%, with a cap of 5%.

The famine on the eve of the elections puts pressure on the Jair Bolsonaro (PL) government, which fears the effects of the loss of purchasing power for Brazilians. To try to reduce the damage, the government bet on a package that included cutting taxes.

On June 23, Bolsonaro sanctioned the law that defined the ceiling for charging ICMS (state tax) on fuel, energy, transport and telecommunications.

One of the reflexes was the drop in gasoline prices, the sub-item with the greatest weight in the composition of the IPCA. Petrobras also started to cut fuel prices at refineries with the relief of oil prices on the international market.

Based on measures such as the ICMS ceiling, analysts reduced the projections for inflation in 2022. The financial market estimate dropped to a high of 6.61%, according to the median of the Focus bulletin, released on Monday (5 ) by BC.

Also on Monday, the president of the Central Bank, Roberto Campos Neto, said that the “battle” against inflation “is not yet won.”

In an attempt to contain the famine, the BC has been raising interest rates, which plays against the recovery of household consumption and makes productive investments by companies more expensive.

Over the course of the pandemic, the price surge hit basic products, such as food and beverages, which remain at a level considered high by consumers.

The situation mainly affects the poorest, who are less able to cope with the famine. With inflationary pressure, Brazilians have replaced brands or even cut items such as meat and milk from the menu.

This Friday’s release is the last IPCA release before the first round of elections, scheduled for October 2. September inflation data will be released on October 11, according to the IBGE calendar.