Inflation rises 0.53% in January with pressure from food

The official inflation in Brazil, measured by the IPCA (National Index of Prices to the Extended Consumer), rose by 0.53% in January, the first month of the Luiz Inácio Lula da Silva (PT) government.

The greatest pressure came from the food and beverage group, which advanced 0.59%, according to data released by the IBGE (Brazilian Institute of Geography and Statistics) this Thursday (9).

The result was below the median of market projections and shows a slowdown compared to December, when the high had been 0.62%. Analysts consulted by the Bloomberg agency projected inflation of 0.56% last month.

In 12 months, the IPCA accumulated an increase of 5.77% until January, according to the IBGE. There was also a slowdown. In this clipping, the variation was 5.79% until the previous release.

The accumulated index is above the inflation target pursued by the BC (Central Bank) for 2023. The center of the reference measure is 3.25% this year. The tolerance range is 1.5 percentage points more (4.75%) or less (1.75%).

Lula raises tone against BC

The BC, incidentally, became the target of Lula’s criticism. To try to contain inflation in the country, the monetary authority has been leaving the basic interest rate (Selic) at 13.75% per year. The most recent Copom (BC Monetary Policy Committee) meeting took place last week. It was the first meeting since the beginning of Lula’s government.

On Monday (6), the president called the current Selic level a “shame”. Lula also called on the business community to make demands on high interest rates.

The increase in the Selic rate is the Central Bank’s instrument to try to cool the demand for goods and services and, thus, contain prices and anchor inflation expectations. The possible side effect is the loss of breath of economic activity, because the cost of credit is higher for companies and consumers.

The economy was already showing signs of slowing down before Lula took office. The PT’s criticisms of the BC’s actions, however, have increased inflation expectations and pressured interest rates.

The movement generates a reflection contrary to what was intended by the government. The speech carries the risk of pressure on the dollar, which impacts food prices. Food inflation mainly affects the poor population, the layer of society in which Lula finds support.

Food puts pressure on IPCA

Of the 9 groups of products and services surveyed in the IPCA, 8 rose in January. The segment of food and beverages even decelerated from 0.66% in December to 0.59% in January, but exerted the greatest influence on the index. The impact was 0.13 percentage points.

The IBGE associated the result of food with the lack of products such as potatoes (14.14%) and carrots (17.55%).

“The highs in these two cases are explained by the large amount of rain in the producing regions. On the other hand, we observed a 22.68% drop in the price of onions, due to the greater supply coming from the Northeast and South regions, an item that had an increase of more than 130% in 2022”, said the manager of the IBGE survey, Pedro Kislanov.

The transport group had the second main impact on the January IPCA (0.11 percentage points). The group registered high of 0.55%. Only the clothing segment (-0.27%) had a negative change in the month.

The financial market raised the outlook for the accumulated IPCA in 2023 to 5.78%, according to the most recent edition of the Focus bulletin, released by BC on Monday. It was the eighth consecutive rise in the projection.

If the estimate is confirmed, this will be the third consecutive year that the inflation target has been exceeded in the country.