Inflation of services should have the highest high since 2015 and poses a challenge for BC to meet its target in 2023 – Economy

BRASILIA – The acceleration of the prices of services has drawn attention in recent months and the group could close the year at the highest level since 2015 (8.1%), driven by the reopening of activity in an environment of higher costs and the resumption of economic growth. job. At a time when there is greater optimism about economic growth this year, the higher notch in services prices, which are often more persistent, could be an additional challenge to the convergence of the inflation target of 2023 (3.25%) – something that the market is increasingly disbelieving.

The prices of services today represent just over a third of the Brazilian consumption basket measured by the IPCA, the official inflation index. In the 12-month April indicator, this group showed a new acceleration, from 6.30% until March to 6.94% in the period ended in April, against 12.13% of the total IPCA, according to calculations by the chief economist at Greenbay Investimentos. , Flavio Serrano.

From 2002 to 2016, service prices showed rates of increase above 5%, averaging around 7% over the period. From 2017, after two years of recessiononwards, the average fell by half, remaining at a well-behaved level with economic growth close to 1% until 2019 and then falling with the pandemic of Covid-19, which strongly affected the sector. With the beginning of the economic reopening, prices rose again at the end of last year.

In an article published on the Blog do Ibre, the legislative consultant of the Senate, Ailton Braga, projects that the prices of services should reach 7.5% in June. He considers this level “incompatible with the inflation target for the coming years”, especially in 2023, as it would require close to zero variation in tradable items, impacted by the exchangeand monitored prices.

He recalls that, between 2011 and 2014, when the prices of services were around 8.5%, the full IPCA was always above the target of 4.5%, even with the help of the dollar and the control of monitored prices, as Gasoline and energy.

“It will be difficult to reduce inflation from 11% to 3%. Possibly, a strong drop in the level of activity will be necessary, to bring inflation to the target, as happened when inflation reached 10% in 2015. a recession, and even then it took two years to go down”, Braga told Estadão/Broadcast.

like the central bank considered in the minutes of Monetary Policy Committee (Copom)Braga also assesses that most of the effects of the restrictive level of basic interest have not yet reached economic activity and, therefore, with a longer lag, the prices of services.

As this sector is highly labor intensive, wage increases in the economy tend to be a relevant cost and to influence final price adjustments. THE monetary policy tighter, cools the economy and acts to reverse this dynamic. But the process takes time and some economists point out that activity and the job market have been a positive surprise.

“What we are seeing are positive surprises in economic activity and in the unemployment rate. Salaries are restoring lagged inflation. In this context, service inflation will worsen. But the BC is rising fees. At some point, the economy will slow down and the prices of services too, but next year they should remain high”, says the chief economist at Novus Capital, Tomás Goulart.

The economist projects an increase in the IPCA of 8.4% this year and 4.2% in 2023, with 7.0% and 5.5% for services. For him, the BC has to “pray” for a reversal in global inflation, especially in commodities (basic products such as foods and iron ore), in order to achieve an IPCA closer to the target next year. “It is very unlikely that we will have disinflation greater than that. This level of 4 percentage points is already a great disinflation”, he says.

The strongest disinflation process in the Real plan went from 1995 to 1996 (12.85pp), still under the effects of the policy. Then, the highest was from 2015 to 2016, at 4.38pp. “To go to 3.25%, you have to count on a lot of global help”, he adds, who expects the BC to take the Selic to 13.25% and the economy to grow 1.5% this year.

Analyzing the effect of the mass of real earnings, measured by the Pnad, on the prices of services, economist Fábio Romão, from LCA Consultores, estimates the peak for this category at 7.8%, in June. Then, he assesses that it tends to slow down with the impact of the monetary tightening already carried out, ending 2022 at 6.4% – the highest value since 2016 (6.5%) – and 2023 at 5.1%. For the IPCA, the projections are 8.0% and 3.8%. “I believe that the services category, even though it is not the flagship, can help in the slowdown of the IPCA in 2023.”

Tendências Consultoria Integrada expects an even greater deceleration in service prices between the end of 2022 and 2023, from 7.0% to 3.7%, also observing a “cooling” in the labor market in the second half of this year. “We should ‘harvest’ less service prices in 2023”, explains economist and partner Alessandra Ribeiros, who estimates stability for the Gross Domestic Product (GDP) 2022 and up 1.3% next year, in addition to Selic at 13.25% at the end of this year.

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