Rent inflation eases, but accumulates high of 17.78% in 2021

The IGP-M (General Price Index – Market), known as the rent inflation indicator in Brazil, accumulated a high of 17.78% in the 12 months of 2021, reported this Wednesday (29) the FGV Ibre (Brazilian Institute) of Economics of the Getulio Vargas Foundation). Analysts consulted by Bloomberg agency had expected a smaller advance, of 17.62%.

Despite registering a double-digit variation, the IGP-M was below that verified in 2020. At the end of last year, the increase in 12 months was 23.14%, according to the FGV Ibre.

In the monthly cut, the IGP-M accelerated to 0.87% in December 2021, after changing 0.02% in November. Analysts polled by Bloomberg expected rise of 0.73% in the last month of the year.

“The biggest contribution to the result of the December IGP-M came from the producer index. This month’s result was influenced by the increase in cattle prices (11.69%), a reflection of domestic demand and the resumption of exports, and by the acceleration in the prices of crops affected by frost and drought, such as coffee (12.52%) and sugar cane (2.83%)”, said André Braz, coordinator of the price indices at FGV Ibre.

The legislation provides that lease contracts have an annual correction index, without the obligation to choose the IGP-M. But, as its use was agreed in the country, the indicator became popularly known as rent inflation.

Since the arrival of the pandemic, the IGP-M has soared, influenced in large part by the appreciation of the dollar and of agricultural and industrial raw materials in the international market.

This situation served to provoke debates about the choice of the indicator in the real estate market. A bill in the Chamber of Deputies seeks to limit the readjustments of lease contracts to the IPCA (Extended National Consumer Price Index).

The IPCA, calculated by the IBGE (Brazilian Institute of Geography and Statistics), is known as the official inflation in Brazil. In the 12 months to November, the most recent period with available data, it rose 10.74%.

Throughout this year, the distance between the IGP-M and the IPCA has narrowed. This happened because, on the one hand, the rent index decelerated in the second half, while the official price indicator gained strength.

For those who have contracts adjusted by the IGP-M, the accumulated variation until December will be applied to those whose birthdays are in January. Therefore, if the owners decide to transfer the index in full, a rent of R$3,000, for example, will be R$3,533.40.

The index calculated by FGV seeks to measure prices along different sectors of the production chain — from raw materials, through construction, to services and final goods.

For this, its variation is composed of three indicators: IPA (Broad Producer Price Index), IPC (Consumer Price Index) and INCC (National Construction Cost Index).

The IPA, which captures the price movement of agricultural and industrial raw materials, is the one with the greatest weight. It accounts for 60% of the IGP-M. In other words, the increase in commodities may reflect on property rental values.

The component that rose the most in 2021 was precisely the IPA. The 12-month high, through December, was 20.57%. Last year, the advance had been even greater, at 31.63%.

The IPC, in turn, represents 30% of the IGP-M. In 2021, the products and services analyzed by the indicator registered an increase of 9.32%. In 2020, the rise in consumer prices had been smaller, 4.81%.

The INCC is responsible for the other 10% of the composition of the IGP-M. In 2021, the construction indicator accumulated an increase of 14.03%, higher than the previous year’s mark (8.66%).