Food inflation expected to be lower in 2023, but still uncomfortable

Food and beverage inflation tends to rise less in 2023 than this year, but it should show a still high and uncomfortable price level for Brazilian pockets, economists assess.

Expensive food represents a challenge to the fight against hunger in the country, a promise made by President-elect Luiz Inácio Lula da Silva (PT).

“If inflation remains high, the scope of any assistance measure promoted by the government decreases”, says economist André Braz, from FGV Ibre (Brazilian Institute of Economics of the Getulio Vargas Foundation).

Since the beginning of the pandemic (from February 2020 to November 2022), the food and beverage group has accumulated an increase of 36.06% in Brazil, according to data from the IPCA (National Index of Broad Consumer Prices).

It is almost double the general inflation rate. In the same period, the IPCA rose 20.68%, according to the IBGE (Brazilian Institute of Geography and Statistics).

In the accumulated of 2022 alone, the food and beverages group advanced 10.91% until November, compared to 5.13% of the general index. In 12 months up to November, the high of the segment was 11.84%, against 5.90% of the IPCA.

For the accumulated of 2023, economists project an advance of food and beverages closer to the general price index, whose estimates are in the range of 5% to 6%.

“Food inflation should subside, but slowly”, predicts Braz. “It should be somewhere around 5% by the end of the year [2023]🇧🇷

The food shortage mainly affects the poor population. In proportional terms, this group allocates a larger portion of the budget to the acquisition of basic products.

“Even with the possible slowdown, the feeling will remain uncomfortable [em 2023]”, assesses economist Fábio Astrauskas, from Siegen Consultoria.

He predicts food and beverage inflation between 4% and 6% for next year, if there are no major weather problems and the positive projections for the crop are confirmed.

In the first half of 2022, heavy rains reduced the supply of fruits and vegetables in regions such as the Southeast. There were transfers to prices. The drought that hit the South also put pressure on food.

As if the climatic extremes this year were not enough, the war in Ukraine raised the prices of agricultural commodities, such as corn and wheat, on the international market.

The picture generated reflections in Brazil, since these goods serve as the basis for the manufacture of food.

The pressures of 2022 came after the pandemic had already increased production costs in the field. Fertilizers, for example, became more expensive in the health crisis.

In 2023, the likely slowdown of the global economy will tend to contain demand for commodities and curb prices, analysts project.

According to them, this should generate some respite for food inflation next year, as well as the good harvest conditions expected for Brazil.

The 2023 harvest of grains, cereals and legumes tends to reach 293.6 million tons in the country, a new record in a historical series that started in 1975, according to an estimate released this month by the IBGE. The number would represent an increase of 11.8% compared to 2022.

“Everything indicates that we will have a very good production in 2023. There are risks [para a inflação]🇧🇷 Have. The war continues. Russia and Ukraine are great producers”, says economist Felipe Kotinda, from Santander bank.

In his evaluation, the reduction in the planted area of ​​rice and beans is a factor of pressure for the prices of these products, which have been losing space for items more aimed at the international market, such as soy and corn. “It worries because there is a change in the planted area.”

Even so, food inflation for consumption at home should slow down to close to 4% by the end of 2023, predicts Kotinda. The accumulated increase in 12 months until November 2022 was 13.32%, according to the IBGE.

Meats, says the economist, are among the items that may have a stronger relief in prices, in a scenario of truce of grains used in animal feed. “It’s a more benign scenario than in recent years,” he says.

Economist Jackson Bittencourt, coordinator of the economic sciences course at PUCPR (Pontifical Catholic University of Paraná), still projects an advance in the range of 8% to 9% for food and beverage inflation next year. He considers “very difficult” a variation below that level.

“The scenario is still one of high inflation. The unemployment rate remains under pressure, many people are working informally. With high prices and lower incomes, part of the population is impoverished”, he says.

Starvation, adds the professor, tends to make it difficult to fight hunger in the first year of the new Lula government.

“It is a great challenge to fight hunger with rising prices. We are going to need a special policy for this issue”, he says.

“I don’t know if incentive measures are going to be created, such as tax cuts, lower loans for farmers. But this comes at a cost, and the government will assume it with restrictions on public accounts”, he says.

Basic basket exceeds aid

In the social area, Lula is betting on maintaining the Brazil Aid of R$ 600, with an additional R$ 150 per child up to six years old. The social program will once again be called Bolsa Família.

In November, the average price of the basic food basket increased in 12 of the 17 capitals surveyed by Dieese (Inter-union Department of Statistics and Socioeconomic Studies).

The value was below R$ 600, the current level of Auxílio Brasil, in only five cities. All are in the Northeast: Aracaju (R$ 511.97), Salvador (R$ 550.67), Recife (R$ 551.30), João Pessoa (R$ 552.43) and Natal (R$ 566.95) .

To curb the high cost, part of the analysts defend the recomposition by the federal government of the regulatory food stocks, which have been reduced in recent years. This policy aims to increase the supply of products in periods of high prices.

“Inventories are an important supply stabilization policy […]🇧🇷 They would bring more regularity, but it is necessary to invest in storage, silos, transport”, says Astrauskas, from Siegen Consultoria.

Braz, from FGV Ibre, says that the formation of inventories “does not work miracles and only reduces the volatility” of prices. “Are they welcome? They are very welcome. But they don’t work miracles if input prices rise a lot.”

Bittencourt, from PUCPR, considers that the measure is not the most appropriate. According to him, the formation of stocks can discourage the production of certain products. “There are medium or long-term policies [que podem ser adotadas]but in the short term there’s not much magic.”