IPCA and CPI: inflation indicators point to even higher interest rates in the US and Brazil

Inflation data are the focus of business this Wednesday (11) and show that the global rise in prices is not giving truce. Here in Brazil, the Broad Consumer Price Index (IPCA) increased 1.06% in April compared to March, practically in line with the market consensus (1%). In the United States, the Consumer Price Index (CPI) changed 0.3% from March to April – the market was forecasting an increase of 0.2%.

Although not very different from the consensus of economists and analysts, in both cases, the indices reinforce concerns of a more aggressive monetary tightening cycle. Here in Brazil, where interest rates are in the double digits (and inflation as well), it is a sign that the Selic rate should continue to rise.

Inflation in April also marked the worst annual variation since 2003, up 12.13%. For the month, the 1.06% rise was the biggest since 1996.

“With today’s IPCA, it was clear that we will have high interest rates in June”, says Gustavo Cruz, strategist at RB Investimentos. He explains that the IPCA slowed down in relation to March (when it advanced 1.62%), which was already expected, as the green flag of the energy tariff came into effect. But food weighed more, especially wheat and soy products, impacted by the scarce supply of commodities with the Ukrainian war. “As far as the conflict is from Brazil, the effects have reached the daily lives of the population”, he says.

Read also: After Copom minutes, economists are divided on the end of the cycle of high interest rates

High fuel prices also had an important impact on the index. The new adjustments this week should add pressure from the government itself against Petrobras (PETR3;PETR4), according to the economist. “I imagine that interference will be higher in the four months before the election,” says Cruz.

With the change of the Minister of Mines and Energy, the feeling is that the government should interfere more in prices, he says. “This could even mean a lower IPCA going forward, given the impact of these items, but we don’t know if a stronger adjustment will come after the elections.”

Goldman Sachs notes that core inflation rose above expectations of 0.95% in April, accelerating to 9.69% annually. Inflation for durable goods is up 14.96% year on year, as well as for industrial goods, which remains high at 14.22% year on year (from 13.44% in March).

The bank stresses again that “inflation is not only very high, but also highly widespread; projected to remain above 10% through August 2022.”

“The broad and likely lasting shock to commodity prices and other logistics/input production costs is expected to keep short-term consumer price inflationary pressures high, only partially offset by the announced decline in electricity tariffs,” he says. the analysis.

Read more: Stagflation: what is it and what are its impacts on your life?

Inflation prospects in Brazil continue to worsen, highlights XP

April’s IPCA also came above XP’s expectations (which projected a variation of 0.95%). The house explains that the difference between estimates and the actual result was mainly due to the sharper rise in prices for “health and personal care”.

In addition, XP highlighted that the 7.4% forecast for the 2022 IPCA is clearly sloping upwards and if some risks materialize (as they seem to do), consumer inflation would be between 9.0% and 9 .5% at the end of the year.

New supply chain disruptions, caused by China’s “zero Covid policy” and a protracted war in Ukraine, carry additional risks. Inflation for industrial goods could reach 10% this year, adding 70 basis points to XP’s expectation for the 2022 IPCA.

“What is most worrying, however, is the quality of the index, which remains quite negative, recording a diffusion measure close to 80% and cores still under considerable pressure”, says Luca Mercadante, economist at Rio Bravo.

The analysis house’s projections are also increasingly higher and inflation is likely to stay above the 7.2% projected for 2022. “From May onwards, inflation should start to slow down, but with the persistence of high prices , the decline tends to be slower than previously expected, worsening expectations for the year”, concludes Mercadante.

Fed also has hard work ahead

The US CPI for the last 12 months is up 8.3%, indicating a slowdown in April and that US inflation may have reached a peak. However, it remains close to the highest annual variation in 40 years and inflationary pressures are also widespread, with a greater weight in the housing and food sectors.

“We had China, USA, Germany and Brazil reporting inflation this morning. All the very bad numbers show that this problem is here to stay and for now we will have to deal with it with very tough measures”, says Marcelo Oliveira, founder of Quantzed.

Morgan Stanley, meanwhile, notes that US CPI was driven almost entirely by rising airfares.

Core consumer inflation rose 0.57% on the month, versus Morgan’s 0.50% estimate and 0.40% consensus. “Behind this better-than-expected result, there was a substantial 18.6% month-on-month increase in airline tickets”, underlines the bank. “This was well above the 5.5% increase we had expected and added an 8 basis point increase to month-on-month core CPI inflation compared to expected.”

The other main services were more in line with expectations. Overall, leaving the monthly airfare increase aside, the underlying trend of monthly inflation appears broadly stable at around 0.5% per month, something that has been occurring since November, the analysis says.

“The core has annualized 6.3% since November, consistent with this underlying trend, and so while we likely surpassed the 12-month core peak at 6.5% in March, a short-term plateau has formed not far below that. peak”.

CM Capital highlights that, analyzing the qualitative composition of the data, starting with the two groups that have been protagonists of the country’s rising inflation, food and energy, it was possible to observe a diffuse behavior compared to what had been seen until then, with the food group maintained its upward trajectory, while the energy group had a deceleration, the first in a considerable historical period.

In the case of energy, the explanation for the numbers comes especially from the release of oil stocks by the government, which helped to circumvent the exponential growth in fuel prices, which had been a reason for great dissatisfaction on the part of the country’s consumers. In the annual accumulated, however, the same pattern cannot be observed, with the energy index accumulating growth of 30.3%, with emphasis on gasoline, which increased by 43.6% between April of this year and the same month of last year. last year.

For economist Gustavo Cruz, the April CPI will reinforce “the part of the market that asks for an interest rate acceleration by 0.75” percentage point.

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