If Anbima’s expectation for the September IPCA is confirmed, it will mark the second occurrence of three consecutive months of negative IPCA, since the 1980s. At this moment, many investors wonder if it is time to exchange IPCA-linked assets for to CDI or prefixed. However, research shows that most still prefer inflation protection when the horizon is five years or more.
The IPCA accumulated between the months of July and September should be -1.16%.
Many investors, led by the recent variation, extrapolate the negative numbers for the future. Care must be taken to ensure that this attitude does not lead to wrong investment decisions.
Despite the recent price drop, inflation accumulated in the year through September should still be 4.3%. In 2022, the IPCA should end the year with a variation of 6%, according to the Central Bank’s Focus report.
It is important to point out that around 70% of the observed price drop is due to the reduction of ICMS, CDI and PIS and Cofins taxes on fuels. This tax reduction is due in the short term. It should end on 12/31/2022.
Therefore, starting in January, we could see this fall turning into a rise, if states and the federal government return to the previous rates.
Additionally, according to Anbima, the IPCA expected for October is +0.38%. Therefore, the IPCA returns to be positive.
According to a survey conducted on a social network, for medium-term investments, that is, five years, the preference for the IPCA index remains.
In the survey, three alternatives were included: CDI, 11.55% per annum prefixed and IPCA+5.7% per annum.
The choice of these rates was not random. I didn’t explain in the survey, but these are the market rates for government bonds traded last Friday.
Therefore, if the market is right in its pricing, the three alternatives should yield the same yield in five years.
Even though it could present the same result, the voter preference was expressive for one of the alternatives. More than half of the voters preferred the IPCA index.
Surprisingly, the CDI was the least preferred alternative, despite having the highest rate in the short term.
It lost in preference even to the fixed rate of 11.55% per year. The memory of a lower CDI in the years 2018 to 2021 may be responsible for this preference.
In the four years between 2018 and 2021, the CDI yielded on average less than 5% per year.
I believe that investors acted correctly in their preference.
For the medium and long term, the security of guaranteeing a real interest rate, that is, above inflation, should be the first objective.
The CDI index is more suitable only for applications with a short-term horizon, that is, less than 2 years.
Michael Viriato is an investment advisor and founding partner of Investor’s House
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