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Jan 27, 2016 5:30 EST

Brazil: IPCA-15 Inflation at 10.7% YoY; Inflation Among Freely Determined Prices Accelerates to 8.6% YoY (Ramos)

iCrowdNewswire - Jan 27, 2016

Goldman, Sachs & Co.

 

Brazil: IPCA-15 Inflation at 10.7% YoY; Inflation Among Freely Determined Prices Accelerates to 8.6% YoY (Ramos)
IPCA-15 inflation printed at a high 0.92% in January (in line with consensus expectations). Annual headline IPCA-15 inflation reached 10.74% in January, up from 10.71% in December.
The average of the three main core inflation measures remained high: 0.69% in January (versus 0.82% in December) with the annual measure now tracking at 9.00% (up from 9.05% in December).
Inflation in January was pressured by still intense upward pressure in food and beverages (1.67% vs. 2.02% in December) and the initial impact from increases in urban transportation fares and cigarette prices. This was only partially offset by the seasonal decline in airfares (-5.8% vs. +36.5% in Dec) and moderating fuel price inflation.
Overall, administered prices rose 0.91% in January (also 0.91% mom in December and 1.00% a year ago), and market-determined prices rose by 0.92% (up from 0.86% a year ago).
The inflation diffusion reached 75% in January, up from 70% a year ago; a telling sign that inflationary pressures remain highly generalized.
Services inflation moderated to 0.56% in January (from 1.03% in December), leaving the annual measure at 8.01% (versus 8.3% in December).
Inflation among the items whose prices are freely determined/set by the market (prices determined by supply and demand in the market: 75% weight in the IPCA) rose to 8.6% yoy (up from 8.5% yoy in November and 6.9% a year ago), and inflation in prices that are regulated by the government (25% weight in the IPCA) eased to 18.0% yoy (down from 18.1% in December).
Inflation has admittedly been under pressure from the large increase in a number of administered prices, but we stress that despite the ongoing recession and labor market deterioration, inflation in the set of freely determined prices is tracking at a high 8.6% yoy (up from 6.9% in Jan 2016) with services inflation sticky above 8.0% for over three years.
The lagged pass-through from BRL depreciation, pass-through (second-round effects) from the large shock to administered prices to freely determined prices, inertia, and formal and informal indexation mechanisms are likely to keep inflation under significant pressure in 2016 despite the projected severe contraction of real GDP.
The outlook for 2016-17 inflation remains challenging. Inflation expectations for 2016-17 have been steadily moving up since early August on the anticipation of additional pass-through from BRL depreciation, renewed pressures from administered prices, federal and local tax hikes, the large (11.7%) increase in the minimum wage, and the moving central bank timeframe for full inflation convergence to the target (from the original end-2016, to the softer open-ended relevant horizon for monetary policy, and lately to a distant end-2017). Hence, despite successive downward revisions to the 2015-2016 real GDP growth outlook, 2016 inflation expectations rose to 7.0%, from 5.4% in August, and are now well above the 6.50% upper limit of the generous inflation target band.
KEY NUMBERS:
IPCA Headline Inflation (Dec): 0.92% mom (10.74% yoy) vs. GS at 0.92% and consensus at 0.92%.
Core (average of three measures): 0.69% mom (9.00% yoy).
Contact Information:

Alberto Ramos
+1 212 357-5768
[email protected]
Goldman, Sachs & Co.

Via iCrowdNewswire
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