Brazil CPI Review: 0.8% Growth in the month but Stable on Annual Terms
The Brazilian National Statistics Institute (IBGE) released February's CPI figures, slightly exceeding market expectations at 0.82% (m/m), maintaining the Y/Y index at 4.5%. Notably, the rise was seen in the Educational group, alongside gasoline prices (+2.48%) and a drop in airfare tickets (-10.4%). Food and Beverages also rose (+0.95%), attributed to adverse weather impacting harvests. Core CPI grew 0.5% (m/m), signaling a potential slowdown in inflation, likely allowing for continued interest rate cuts throughout 2024.
Figure 1: Brazil CPI (%, m/m)
Source: IBGE
The Brazilian National Statistics Institute (IBGE) has released the CPI figure for February. The data came slightly above the market expectation of 0.78%, registering a 0.82% (m/m) growth during the month. Therefore, the Y/Y index was kept stable at 4.5%, just in the upper limit of the target bands (1.5% - 4.5%).
A big part of the rise was concentrated on the Educational group, as we have previewed (here). As many educational courses readjust their tuition in February to catch up with the general inflation. However, gasoline prices also rose a bit (+2.48%), as a consequence of the rise in provincial taxes on the price of gasoline. The drop in airfare tickets (-10.4%) was impacted by the lower demand in February as the vacation time in December and January ends, partially compensating for the rise in gasoline prices.
Figure 2: Brazil CPI (%, Y/Y)
Source: IBGE
It is important to note the rise in the Food and Beverages group (+0.95%). This group accumulated a 5% rise since November and is seen by most analysts as transitory. Excessive rainfall in southern portions of the country reduced the productivity of rice and potato harvests, impacting their prices. Additionally, milk prices rose 3.2% in the month, contributing to the rise in Food Prices. Although most of this rise tends to cease soon, it will be interesting to see whether we see any deterioration in other agricultural goods as the impact of El Niño is likely to continue to be felt.
Core CPI, measured here as the average of all cores presented by the Brazilian Central Bank (BCB), grew 0.5% (m/m) and its Y/Y index now stands at 4.2%, below the headline CPI. Although the February number came in high, the qualitative data points to a scenario of inflation cooling down, although slower than in 2023. We believe this number will now allow the BCB to continue cutting interest rates and applying no pause throughout 2024, but rather only diminishing the pace to 25bps from 50bps. We see inflation ending 2024 at 4.0%, with some stickiness generated by wage inflation.