The ‘Super Wednesday’ in the markets, inflation accelerates in all incomes and what matters in the economy

ANDsta is the edition of the newsletter FolhaMercado this Thursday (17). want to receive it from monday to Friday at 7 am In your email? Sign up below.

‘Super Wednesday’ no surprises

On the day known by the financial market as “Super Wednesday”, with the monetary policy decisions of the Fed and the Central Bank, the authorities fulfilled the expectations of analysts.

In Brazilthe Central Bank’s Copom maintained the plan announced at the last meeting to reduce the pace of monetary tightening and increased the Selic by 1 point percentage (pp), for 11.75% per year.

For the next meeting, the autarchy has already ordered a new hike of the same size (1 pp) for the basic interest rate.

What explains: the rise in interest rates is a tool used by the BC to cool down economic activity and, thus, try to bring inflation into the pre-defined target (3.5% for this year and 3.25% for 2023). This was the ninth consecutive increase, and Brazil is second only to Russia in real interest rates.

At this Wednesday’s meeting, most of the BC’s efforts were focused on price pressure in 2023, as monetary policy has a delayed effect on economic activity.

in numbers: in the latest Focus survey, in which the BC captures market projections, this year’s median inflation jumped to 6.45% (well above the 5% ceiling). For 2023, estimates for the IPCA are in 3.70%.

In the USA, the Federal Reserve was also unsurprising and raised benchmark interest rates in 0.25 pp., for a range between 0.25% and 0.5%. Understand here how this affects Brazil.

• Committee members projected that rates will reach the end of the year in a range between 1.75% and 2%, which means a new high of 0.25 pp at each of the next six meetings in 2022.
• There, the Fed works to fight the highest inflation seen in 40 years.

Opinion | Vinicius Torres Freire: Interest crunch goes further, says BC, which sends a message to Bolsonaro.

How are the investments?

The rise in the Selic rate does not change specialists’ view of the good returns on fixed-income securities, but the advance in inflation projections reduces the real yield of these assets in relation to the last time the BC raised interest rates, in February.

Understand: real yield projects the annual return on assets discounting inflation – in this case, estimated at 6.45% per year. The survey is from financial search engine Yubb.

• Savings, the darling of Brazilians, now has a projected negative real yield of 0.26% per year. In February, it was positive at 0.75% per year.
  ​
• On the positive end are the incentivized debentures, with a real return of 6.42% per year. These papers, which in practice are investor loans to companies, must be analyzed carefully.

Keep an eye: so that investors are not surprised by a new rise in inflation, analysts highlight public securities traded on the Treasury Direct index linked to the IPCA. IPCA Treasury papers maturing in 2026 had a yield of 5.62% (besides the variation of inflation) this Wednesday.

In the Bags: the rise in the basic interest rate naturally tends to scare away part of Brazilians from the stock market, which is considered more risky. But experts also see potential gains in this field, especially with a long-term investment.

This Wednesday, the Fed’s unsurprising decision relieved US stocks and optimism reached Brazilian assets. Also boosted by good news from China, the Ibovespa closed at a high of 1.98%, to 111,112 points, and the dollar dropped 1.31%, the BRL 5.09.

No one escapes inflation

No one was unharmed by the acceleration of inflation in February in Brazil. The rise in prices in the month, which was the highest since 2016, affected the rich, the poor and the middle class, according to a survey by Ipea.

In numbers: high-income families saw the greatest acceleration in prices, from 0.34% in January to 1.07% in February. The second highest was for those with very low income, going from 0.63% to 1%.

What explains: February’s inflation was marked by the readjustment of school fees and food prices. While the former affects the richest, the rise in food prices weighs more heavily on the budget of families with lower incomes.

In the 12-month period, inflation hits the poorest hardest, with a rise of 10.9%.

More costs, more debts: one in three Brazilian families has debts in arrears, and high inflation is pointed out as the main reason why these expenses are not paid on time, according to a survey by FGV Ibre.

In families with an income of up to R$ 2,100, delinquency reaches 58%. The percentage reflects a scenario of rising costs added to the fall in workers’ income.

Inflation effects: the rise in meat prices made protein so precious in the country that a Dia supermarket chain in São Paulo locked the refrigerator with the product using a chain and padlock.

Companies also affected: raw material inflation was identified by 47% of Brazilian companies as the biggest difficulty faced by them at the beginning of the year.

Service sector below expectations

Service sector volume declined 0.1% in January compared to December, informed the IBGE this Wednesday.

The result came below the market forecast, which was a 0.3% advance.

In numbers: the segment follows 7% above the level of February 2020, the last month before the pandemic. The biggest losses in the month came from information and communication services (-4.7%), which rose sharply in the pandemic, but are now retreating for the second month in a row.

why it matters: the service sector is the largest employer in the country and involves a wide variety of businesses: from bars and restaurants to financial, technology and educational institutions.

Services provided to families, most affected during the restrictions on circulation in the pandemic, dropped 1.4% in January and are now 13.2% below the pre-crisis. This group includes bars, restaurants and hotels.