The IPCA-15 of 0.36% in March, released today, can be considered neutral when evaluating its ability to change the Central Bank’s monetary policy. The behavior of prices during the month provided arguments both for those who still see risks in the slowdown in inflation and for those who see improvements, at least in the monthly comparison.
Service prices, for example, brought good news in the short term, but warnings regarding longer-term measures remain on, economists say.
Gustavo Sung, chief economist at Suno Research, for example, mentions that there has been a slowdown in core inflation, both in the monthly comparison and in the last 12 months. And he maintains that the diffusion index fell for the second month in a row.
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But he also remembers that some warning signs are about service prices, which remain under pressure. “Despite the slowdown in monthly variation, prices for underlying, labor-intensive services have accelerated over the last 12 months and in the annualized and seasonally adjusted three-month moving average,” he highlights.
Furthermore, there was an increase of 0.91% in the Food and Beverages group, which contributed over 0.19 percentage points to the full index. “As we have observed since the beginning of the year, the more adverse weather with high temperatures and excessive rainfall has been negatively impacting food production and harvesting, putting pressure on food prices”, he explains.
He recalls that, in the Copom Minutes released this morning, the monetary authority showed concern about the evolution of service prices in the face of a tight labor market, with salary adjustments above the inflation target.
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On the other hand, the minutes highlighted that the short-term outlook is for projections for the prices of food and industrial goods to remain on a benign trajectory.
For Luca Mercadante, economist at Rio Bravo, the IPCA-15 came in slightly above expectations and reinforced the message from the meeting minutes released earlier. “Inflation continues to slow down in several metrics, but there are still some components that require more care, especially those that are persistent”, he explains.
According to his analysis, services inflation still does not operate at values consistent with the BC’s objectives and the cores are moving towards the target quite slowly. “Until this process is consolidated, the data justifies the need for the BC to be cautious, which is also dealing with an economy that is still heated, with resilient activity data and a strong job market”, he assesses.
Warning sign
Claudia Moreno, economist at C6 Bank, also believes that inflation in underlying services, a category that excludes the most volatile items and is the one most looked at by the Central Bank, continues to be an obstacle to the convergence of inflation to the target.
She highlights that underlying services inflation data showed an increase of 0.40% in the month, with 5.2% in 12 months, while the market expected an increase of 0.33% in March.
“The number above expectations raises a warning sign for the inflation trend. While the prices of industrial goods are already falling, services inflation remains resilient, running at a high level, pressured by the heated labor market, which causes wages to grow above productivity”, he explains.
Nicolas Borsoi, chief economist at Nova Futura Investimentos, also warns that, in the annualized three-month average, underlying services accelerated to 5.8% in March, while the variation in industrials practically zeroed and, in food, the indicator accelerated to 5 .4%.
“Despite the improvement in the core average at the margin, the three-month average also worsened, reaching 3.6%, the highest in five months”, he details.
Leonardo Costa, economist at ASA Investments, notes that the underlying services were slightly higher, due to food away from home. On the other hand, he also analyzes that the core of goods came in well below projections, with emphasis on clothing and household items.
“Services continue to record high monthly fees. However, March was below January and February. partially explained by cinema promotions in the second half of February”, he states, remembering that there is still concern about items sensitive to labor.
Air ticket disappoints
Rafael Costa, from the macro strategy team at BGC Liquidez, sees some “not very good” details in March’s IPCA-15. “Airfare deflation was 9% in the month and our projection was 20% deflation”, he compares.
Regarding the “more favorable” details, he highlights that industrial prices registered deflation and inflation in underlying services and the core average did not come in much above projections.
“We were disappointed with the decline in food inflation, we would have liked to have seen a more significant decrease in this set of prices. Furthermore, we had widespread bullish surprises in almost all of the main IPCA groups. In this first look at the number as a whole, we don’t think it was such a favorable result”, says Costa.
When analyzing the behavior of large groups and some specific items, Carla Argenta, chief economist at CM Capital, states that, in terms of monetary policy, today’s result can be considered positive if analyzed from the perspective of seeking to regain stability of prices.
“Administered prices registered inflation of 0.70% in the month and 7.29% annually. Most inflation is due exclusively to automotive fuels, especially gasoline. The other items, for seasonal reasons or due to lower inflationary inertia, contribute to low inflation for the period”, he compares.
Free prices, remember, presented inflation of 0.24% (in the month) and 3.11% (year against year), decelerating sharply compared to the previous result, which had been 0.88% monthly. “This group is the highlight in the field of monetary policy, as it encompasses the set of goods and services that suffer from a strong effect of interest rates”, he explains.
Regarding services, Carla comments that the drop in airline ticket prices and the normalization of service prices partially driven by idleness and inflationary inertia, such as medical and dental services and repairs, contributed to the group’s strong cooling .
André Cordeiro, senior economist at Banco Inter, highlights that the core average fell for the first time in four months, going from 0.57% in February to 0.23% in March. “Inflation in services, which is a point of attention for the Copom, was quite well behaved, varying only 0.07%, being greatly influenced by the drop in air tickets”, he states.
