Airfares and medicines were the ‘villains’ of inflation in May, while food held back the rate increase | Economy

After months of pressure from electricity and fuel, inflation in Brazil had new villains in May. This time, it was airline tickets and medicines that exerted greater pressure on the rate, while important foods on the Brazilian table helped to contain it.

Data released by the Brazilian Institute of Geography and Statistics (IBGE) this Thursday (9) show that inflation slowed in the country, from 1.06% in April to 0.47% – the lowest monthly rate since April of the year. last year, when it stood at 0.31%. As a result, inflation accumulated in 12 months also slowed, which went from 12.13% to 11.73%.

  • IPCA: inflation stays at 0.47% in May and slows to 11.73% in 12 months

According to Pedro Kislanov, manager of the Broad Consumer Price Index (IPCA), an indicator that takes into account the country’s official inflation, among the products and services surveyed by the IBGE to compose the rate, airline tickets were what, individually, had a greater impact on the rate in May.

The survey showed that, on average, airfare increased by 18.33% compared to April, accounting for 0.08 percentage point over May’s inflation.

“There are basically two factors that help to explain the increase in air ticket prices. There is the effect of costs, due to the rise in the price of jet fuel, and also the effect of demand, since there was a reheating of demand for travel that has been repressed since the beginning of the pandemic”, pointed out the researcher.

The researcher emphasized that “the first quarter GDP result corroborates” the effect of demand on air tickets, since data released by the IBGE showed that the service sector was what held back the country’s economy, driven precisely by the travel-related services as a whole.

“It is worth mentioning that airline tickets are collected two months in advance. In this case, the prices of air tickets were collected in March for trips that would be carried out in May”, highlighted the researcher.

The second biggest impact (also 0.08 pp) came from pharmaceutical products, which rose 2.51% in the month, driven by the readjustment, authorized by the government, of 10.89% on drug prices.

The adjustment in drug prices was authorized in April and, according to the IBGE, may have been applied by retailers gradually, having an impact on the index both in April and in May, although the variation was lower in the last month.

Food curbs inflation in May

A common villain of inflation in Brazil, food this time helped to contain the index from April to May. As determined by the IBGE, the IPCA for the food and beverage group slowed from 2.06% in April to 0.48% in May.

This deceleration was driven by food at home, whose index changed from 2.59% in April to 0.43% in May, while food outside the home remained practically stable (from 0.62% to 0.61%).

Important foods on the Brazilian table and which came to pressure inflation in April registered deflation in May, pressing the deceleration of the indicator in comparison with the previous month.

The main falls in food prices recorded from April to May were for tomatoes (-23.72%), carrots (-24.07%) and potatoes (-3.94%) – despite the deflation in monthly comparison, in 12 months these products accumulate high, respectively, of 55.62%, 116.37% and 54.30%.

Vegetables and vegetables (-3.22%), in addition to fruits (-2.30%), also had deflation in May, but in 12 months they also accumulate expressive highs, of 32.15% and 25.30%, respectively.

On the other hand, other essential foods on the Brazilian table maintained a significant price increase in May. This is the case of onions, whose average increase was 21.36%, carioca beans, 7.31% and long-life milk, 4.65%.

The research manager pointed out that, according to the IPCA diffusion index, 72% of the investigated products and services registered a price increase in May, while in April this percentage reached 78%. It was precisely food that caused this smaller spread of inflation.

“The diffusion index for non-food products was 78%, the same as in April, while the index for food products dropped from 79% to 65%”, emphasized Kislanov.

Higher service inflation

Airfare also helps to explain the increase in service inflation in the country, which, unlike the general index, accelerated from 0.66% in April to 0.85% in May.

In addition to the rise in airline ticket prices, there was also an increase in the average price of services related to personal care (hairdressing, barber, manicure and waxing) and telephony and pay-TV combos.

In 12 months, accumulated inflation for services was 8.01%, the highest rate since December 2015, when it was 8.09%.

Inflation above target for the 2nd year in a row

The average of market expectations for closed inflation for 2022 is currently at 8.89% according to the latest Focus survey released by the Central Bank.

Defined by the National Monetary Council (CMN), the inflation target for this year is 3.5% and will be considered formally fulfilled if it fluctuates between 2% and 5%. The Central Bank itself has already admitted, however, that the inflation target should exceed the target ceiling for the 2nd year in a row.

To try to bring inflation back to the target, the Central Bank has tightened monetary policy further. The basic interest rate (Selic) is currently at 12.75% and the BC has signaled that it is on its way to raising interest rates further.

For next year, the inflation target was set at 3.25%, and it will be considered formally met if it fluctuates between 1.75% and 4.75%.

For 2023, the current market projection is for inflation of 4.39% and interest rate at 9.75% at the end of the year.

Brazil is the 4th country with the highest inflation among the 20 richest