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Rising inflation sparks warning of higher spending for 2023, economists say

After 3 months of deflation, the IPCA accelerated again in October and was above expectations, at 0.59%. Food increased in the month, as expected, but airfare soared 27% and was the biggest contribution to the index, up 0.16p.p. Even excluding volatile items, we once again see a more generalized inflation in the month, with an upward diffusion to 0.68% and an average of the cores rising from 0.42% to 0.55%.

For Inter’s chief economist, Rafael Vitória, the surprise in the month was the inflation of goods, such as household items and clothing. “As the IPA data, producer inflation, show a drop in cost pressure, this rise to the consumer in October may have been one-off and not a trend”, he analyzes.

The good news in the October IPCA reading, according to Vitória, was a deceleration in services inflation, excluding tickets, which stood at 0.2% in the month, the fourth deceleration in a row, indicating the effect of the normalization of demand and monetary policy. restrictive.

“The acceleration of inflation in the month, although punctual, serves as a warning at this time when a proposal to increase spending for 2023 is being discussed. A very significant fiscal expansion can have a direct impact on demand and result in a new increase in inflation, taking power of monetary policy and increasing the cost of debt and prolonging the time for adjustment”, emphasizes the chief economist.

In the view of Felipe Rodrigo de Oliveira, economist at MAG Investimentos, the diffusion index (% of IPCA basket sub-items on the rise) accelerated in relation to last month. However, the underlying measures of inflation maintained their deceleration trend in the inter-annual data and services inflation came in below expectations, signaling the action of monetary tightening in prices.

“For the next few months, the outlook points to a slowing down of inflation in industrial goods and services, which should allow the maintenance of the IPCA retreat in the accumulated 12 months”, bets Oliveira.

ICMS effects

Economists also cited the effects of the application of the ceiling limit of the Tax on Transactions related to the Circulation of Goods. According to Claudia Moreno, economist at C6 Bank, this return of inflation to positive territory shows that the effects of the reduction in the price on fuel, energy and telecommunications have begun to lag behind.

“Without this one-off impact, we returned to positive inflation, as we have seen in October. When we look at the composition, inflation was not all bad. Services inflation rose 0.67% in October, less than expected. But in 12 months, it accumulates an increase of 8.1%”, he comments.

Eduardo Vilarim, economist at Original, shows that in transport, gasoline prices at pumps, as calculated by the ANP, rose for the fourth week in a row (last price measured at R$4.98) and should impact November results.

“Furthermore, gasoline lags behind international parity (-16%). Thus, our preliminary analyzes suggest a full IPCA of 0.47% in November and 0.73% in December, closing the year 2022 at 6.0%”, he says.

Source: CNN Brasil

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