Gasoline and grains spread inflation across all income brackets, shows FGV

The rise in the price of oil and grains will cause inflation to affect families of all income levels with very similar intensity in 2022, a situation different from that observed at the beginning of the pandemic, when it weighed more heavily on low income.

This is the expectation of economists Aloisio Campelo Jr. and André Braz, from FGV Ibre (Brazilian Institute of Economics of Fundação Getulio Vargas), responsible for the study “The pressure of pandemic inflation on the poorest families”. The work analyzes the behavior of price increases by income bracket since 2020.

The researchers’ projection is for an inflation of 7% this year for the IPCA, the IBGE index used as a target for the Central Bank. Last year, it was above 10%.

Considering the accumulated inflation from February 2020 to February 2022, the IPC-FGV (the Foundation’s consumer price index) increased by 15.2%. Inflation for lower-income families was 16.8%. For the highest income, 13.6%.

This difference is mainly explained by data from 2020, when inflationary pressures were very concentrated among food, an expense class that most compromises the budget of less favored families, followed by spending on housing, which also has a decreasing weight as the economy grows. income level.

For the poorest, the items that weighed the most that year were electricity, rice and bottled gas. For the richest, a new car, energy bill and airfare.

In 2021, rising gasoline has emerged as a new pressure factor for inflation. This item has greater weight for the richest: it represents 5% of consumption, the same weight that gas has for the poorest. In low-income households, gasoline represents only 1.6% of expenditures.

“In 2020, the rich got richer, with a discount on school, postponement of the health plan readjustment, and the poor became poorer, because food went up a lot. In 2021, there was not such a large dispersion in the perception of inflation” , says André Braz.

For 2022, the two researchers expect a repetition of what happened last year in relation to the distribution of inflation, although the list of products that will contribute to this is different.

According to them, the rise in the price of oil and grains, especially wheat, will make inflation affect families of all income levels, being, once again, a negatively democratic phenomenon, which will affect the entire Brazilian population.

“In the first year of the pandemic, inflation somehow spared the upper classes a little. Then, it continued high for low-income families, spread and caught everyone”, says Campelo.

“[Agora] You have many sources of pressure for all sides. That 7% will end up being an inflation for all classes.”

According to the study, the biggest increases this year are expected to be in fossil fuels, followed by food, durable goods and services.

Braz cites some factors that should make inflation more uniform for all families this year.

Reducing the energy tariff will benefit the poorest. This item represents almost 10% of consumption in the lowest income bracket and less than 3% for the richest.

The increase in food, on the other hand, harms low income, as it represents 25% of consumption. The weight is 17% among the richest, according to 2021 data.

The increase in fuel costs has both direct and indirect effects. For the richest, the biggest impact is on gasoline. For the poor, in bottled gas. In both cases, the weight is about 5% of expenses.

Indirectly, these increases also tend to make products and services more expensive, affecting higher incomes more. Transfers for bus fares, many frozen because of the elections, would harm the poorest.

Braz says that the deceleration of inflation also depends on the maintenance of some appreciation of the real against the dollar. This is a factor that tends to benefit all classes due to direct effects and indicators on commodity prices. Or at least mitigate part of the rise in these products that was accentuated after the invasion of Ukraine by Russia.

Last year, inflation for families with an income of up to 1.5 times the minimum wage was 8.9%. For those with income from 11.5 to 33 minimum wages (range covered by the IPC-S) it was 8.7%. In 2020, they were respectively at 7% and 4.3%.

The FGV consumer price index stood at 9.34% last year, with an impact above this average in some of the middle-income brackets (see table). The indicator differs from the IPCA/IBGE, which exceeded 10% in 2021, in relation to aspects such as geographic coverage.

The work considers the division of the population by income deciles —each range covering 10% of the families— according to the separation made in the POF (Family Budget Survey) of the IBGE, but considering the regions reached by the IPC-S: Belo Horizonte, Brasília, Porto Alegre, Recife, Rio de Janeiro, São Paulo and Salvador.