Food inflation set to rise after elections

The deflation (drop in prices) of the food and beverage group may be short-lived in Brazil. Is that, after the retreat of 0.51% in the IPCA (National Index of Consumer Prices) of September, the segment should rise again from October, project economists.

The expectation is that the increases over the last three months of 2022 will be more moderate than the advances recorded in the first half.

Published this Tuesday (11) by the IBGE (Brazilian Institute of Geography and Statistics), the deflation of 0.51% in September was closely associated with the decline in long-life milk, says economist Daniel Karp, from Banco Santander Brasil.

Product prices retreated 13.71%, after soaring in the midst of the off-season, which reduces the supply available on the market.

According to Karp, the milk truce should have a smaller impact in October. Prices, he signals, are stabilizing on supermarket shelves.

Thus, the IPCA of food and beverages should have an increase close to 0.3% this month, projects the analyst. “The milk drop is stalling at the margin.” He sees no prospect of further deflation for food for the rest of the year.

Marco Caruso, chief economist at Banco Original, has a similar assessment. According to him, the food and beverage segment should rise in the range of 0.20% to 0.25% in October.

This perspective, he says, is more associated with seasonal components and the basis of comparison, with a possible return of part of the drop seen last month.

In 12 months, the inflation accumulated by the group was 11.71% until September. The advance was at 13.43% until August. “Prices are rising less, but levels are still high,” says Caruso.

Food shortages put pressure on Jair Bolsonaro (PL) in this year’s electoral race. In search of votes for the second round of the presidential race against Luiz Inácio Lula da Silva (PT), the president tries to improve his approval among the poorest voters.

It is precisely this layer of the population that feels food inflation the most — and in which Lula has a huge advantage. This is because the purchase of food absorbs a larger share of the most vulnerable families’ budgets.

The second round of elections is scheduled for October 30. Bolsonaro was behind Lula in the first round.

“Food and beverages have many price fluctuations, they depend a lot on the international environment, on commodities”, points out economist Reginaldo Nogueira, director general of Ibmec São Paulo and Brasília.

“After the increases at the beginning of the year, they will hardly have such an accelerated growth. It is also difficult for them to fall again. It is more likely that there will be moderate increases”, he adds.

In the first half of 2022, food became more expensive due to supply problems with adverse weather and the economic impacts of the Ukrainian War, among other factors.

In March and April, for example, food and beverage inflation reached above 2% per month, according to the IPCA.

The drop in September (-0.51%) is the biggest since May 2019 (-0.56%). The group has not retreated since November 2021 (-0.04%).

In addition to the milk truce, another highlight last month was the reduction in soybean oil (-6.27%), according to the IBGE.

Onion, on the other hand, jumped 11.22%. In the accumulated of 12 months, the product soared 127.3% until September. The IBGE associates the high price with factors such as the reduction of the planted area.

In general terms, the IPCA dropped 0.29% in September. It was the third consecutive month of deflation. Once again, the drop was driven by the reduction in gasoline.

This is the third consecutive decline for the index. It is also the biggest drop for September in the historical series since the beginning of the Real Plan in 1994.

The IPCA had already dropped 0.36% in August and 0.68% in July this year. A three-month streak of deflation has not been seen since 1998.

Analysts consulted by Reuters, however, projected a stronger fall in September, of 0.34%. According to financial institutions, the IPCA should return to the positive field in October, after the more intense effects of tax cuts on fuel. The month’s IPCA will only be released on November 10, after the election.

In the 12-month period, the inflation index lost steam, but remains on the rise. The advance was 7.17% until September, the lowest since April 2021 (6.76%). The accumulated was at 8.73% until August this year.

Of the 9 groups of products and services surveyed, 4 fell last month, according to the IBGE. Despite decreasing less (-1.98%) than in August (-3.37%), the transport segment once again had the main impact on deflation. The contribution was -0.41 percentage point in September.

Communication (-2.08%) and food and beverages (-0.51%), both with -0.11 percentage point, followed. The household articles group also dropped (-0.13%).

On the high side, apparel (1.77%) stands out, with the highest inflation in the month, and personal expenses (0.95%), with the main positive pressure (0.10 percentage point).

“In general, the worst moment of inflation is behind us. Part of it was due to tax exemptions that the government made and part of it came from the international context”, evaluates Caruso, from Banco Original.

Fuel dropped 8.33% last month, still under the effect of the ceiling for ICMS (state tax) and price cuts at Petrobras refineries.

According to analysts, these measures may even generate residual impacts on the category’s inflation in October. However, oil has been showing signs of recovery in recent days in the international market.

This situation puts pressure on Petrobras, as commodity prices serve as a parameter for the state-owned company’s pricing policy.

In other words, the appreciation of oil makes room for increases by the company. It remains to be seen whether the state-owned company will make this decision on the eve of the second round.

At the opening of the market on Tuesday, the average price of gasoline in Brazilian refineries was R$ 0.31 per liter, below import parity. The concept simulates how much it would cost to import the fuel. The calculation is by Abicom (Brazilian Association of Fuel Importers).

Karp, from Santander, projects a return of the IPCA to the positive field in October, after three consecutive months of deflation. The high should be around 0.3%. Banco Original also forecasts a rise of 0.3%.