Inflation loses momentum in June, but widens the distance from the BC's target ceiling - Kasamim Noticias
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Inflation loses momentum in June, but widens the distance from the BC’s target ceiling

Increased energy prices lead the IPCA increase of 1.95% in the month; index goes to 8.35% in 12 months, above the limit of 5.25%

Brazil AgencyIncreased electricity prices put pressure on inflation

O Broad National Consumer Price Index (IPCA) lost steam in June, registering an increase of 0.53%, compared to an increase of 0.83% in May, according to figures released by Brazilian Institute of Geography and Statistics (IBGE) this Thursday, 8th. The result makes the official indicator of Brazilian inflation accumulate an increase of 8.35% in 12 months, above the ceiling of 5.25% of the target pursued by the Central Bank, with a center of 3.75% and a floor of 2.25%. In the year, inflation accumulated an increase of 3.77%. In June 2020, the index registered growth of 0.26%. Already the National Consumer Price Index (INPC), seen as inflation for the poorest, advanced 0.60%, below the rate of 0.96% recorded in April. The indicator, which is also used as a reference for adjustments to the minimum wage and INSS benefits, accumulates, in the year, an increase of 3.95%, and 9.22% in 12 months.

The increase of 1.95% in electricity was the biggest individual impact of the month. The sector had already led the May IPCA by registering an increase of 5.37%. A National Electric Energy Agency (Aneel) imposed red flag level 2 from June. The change added R$ 6.243 for every 100 kilowatts/hour (kWh) consumed. At the end of last month, the institution approved an increase of 52% in the extra rate on the electricity bill starting this month, with the increase in the red flag level 2 tariff to R$ 9.49 per 100 kWh. The new level should continue until the end of the year in the midst of the country's worst water crisis in 91 years. “Energy continued to rise a lot due to the red tariff flag level 2, which came into force in June. In May, the level 1 red flag was in effect, with a smaller increase (R$ 4.169). Prices, however, slowed down in June due to several adjustments recorded in May in the areas surveyed. In June, we only had an average adjustment of 8.97%, in Curitiba, at the end of the month”, explains research analyst, André Filipe Guedes Almeida. The food and beverage group also put pressure on inflation again. Food at home went from 0.23% in May to 0.33% in June, mainly due to the rise in the price of meat (1.32%), which rose for the fifth consecutive month. Next comes the transport group, driven by fuel. Gasoline recorded an increase of 0.69%, compared to an increase of 2.87% in May. Petrobras readjusted the prices of gasoline and diesel charged at the refinery all at once.

O central bank has already abandoned the expectation of closing 2021 below the target ceiling. The estimate published in the second quarter inflation report points to an increase of 5.8% due to the increase in prices commodities and the recent pressure on electricity. According to the president of the monetary authority, Roberto Campos Neto, inflation has spread throughout the economic chain, but the pressures are still temporary in nature. The BC's forecast is below what is estimated by the financial market. Data Focus Bulletin released this week show the revision of expectations to 6.07%, the 13th upward change in the IPCA. The advance of inflation should put pressure on a more incisive increase in Selic. The basic interest rate was raised to 4.25% in June by receiving an additional 0.75 percentage points. O Monetary Policy Committee (Copom) stated that it should apply a dose of the same proportion at the August meeting, but did not rule out a higher increase, estimated by analysts at 1 percentage point. The market estimates that Selic will end the year at 6.5%, a value considered neutral, that is, it neither stimulates nor harms economic activity.


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