Deflation in Brazil: Prices fall 0.68%, the lowest since 1980

Consumer prices in Brazil fell 0.68% monthly in July, the largest decline since the start of the time series in 1980With which accumulated 10.07% in 12 monthsthe official statistics institute (IBGE) reported Tuesday.

The figure, which represents first decline in inflation since May 2020, it contrasts with the upward process that Brazil is going through and which since last year has given rise to sharp increases in the interest rate.

In June, retail prices had risen by 0.67%, accumulating 11.89% in 12 months.

The July rate “was mainly affected by the transport sector, which had the biggest drop (-4.51%) and contributed the biggest negative impact (-1.00 percentage point) on the index, “IBGE explained in a note.

The decline in this category is explained by the reduction in the price of fuel (-14.15%) in the period, expanded.

Concerned about continued increases ahead of the October elections in which President Jair Bolsonaro will call for re-election, the government promoted a reduction in state taxes that contributed to that drop.

Also, the Petrobras state has made several cuts after Bolsonaro changed its president for the third time in late June, following criticism of the company’s pricing policy.

Another notable decline in July was that of residential electricity (-5.78%), due to the a tariff and tax reduction.

The fall in prices in July placed the rate in the first seven months of the year at 4.77%, close to Central Bank Target Limit 5% by 2022.

Furthermore, the July indicator was lower than the expected median of -0.65% of almost 40 financial institutions and consultants interviewed by the business newspaper Valor.

Despite the decline in the general index, food and drink continued to risewith an increase of 1.30%, driven among other things by the 25.46% increase in milk long life. The index accumulated in 12 months rose to 14.72%.

These advances have a special impact on the pockets of the most vulnerable population, who spend most of their income on basic necessities to survive.

Inflation, double digits in 12 months from September 2021undermined Bolsonaro’s popularity, which late in the electoral race against former left-wing president Luiz Inácio Lula da Silva.

The accumulated advance in prices motivated a increase in government aid from the Auxilio Brasil plan from a minimum of 400 to 600 reais (about 117 dollars at the current exchange rate), from this month to December, to 20.2 million vulnerable families.

it will also be paid gas help families and support for truckers, key sector in Bolsonaro’s electoral support in the 2018 elections.

rate increase

High inflation in Brazil has given rise to a cycle of 12 rate hikes interest rate of the Central Bank of Brazil (BCB) which left its reference at 13.75%.

The BCB began this upward path in March 2020 to curb inflation, driven by internal uncertainties and the impact of the pandemic on global prices, exacerbated since last February by the war between Russia and Ukraine.

Analysts pointed out that the effect of monetary authority policy it would be visible especially in the second half of the year.

For the next meeting, in September, the BCB still foresees a “residual adjustment” of the Selic rate.

Source: AFP

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