IPCA-15: electric energy is the great villain of 2021 and data need to be monitored closely, economists highlight

SAO PAULO – In a sequence of highs, the Extended National Consumer Price Index 15 (IPCA-15) rose 0.89% in August compared to July – above the high of 0.82% expected by economists consulted by Refinitive and the highest result for a month of August since 2002.

In the year, the indicator accumulates high of 5.81% and, in the last 12 months, of 9.30%.

According to the Brazilian Institute of Geography and Statistics (IBGE), the greatest impact on the index came from the 5% increase in electricity, which had the greatest individual impact on the result, accounting for 0.23 percentage points in the month’s index.

João Leal, an economist at Rio Bravo, draws attention to the greater dissipation of pressure on prices in August, also reaching the group of industrial goods. “This shows that the rise in the IPCA is no longer concentrated, but dissipating throughout the indicator, signaling that inflation will continue to be under pressure in the coming months, in a more diffuse way,” he says.

According to him, the data is an additional concern not only for the IPCA, whose expectation by Rio Bravo for the end of the year is 7.4%, but also for the monetary policy strategy of the Central Bank, with a Selic bet on 7 .5% at the end of the year. Leal reinforces, however, that both projections are with an upward bias in the house.

“The situation is not good, the pressures should still remain until the end of the year and may pressure expectations for 2022”, he completes.

In this scenario, Alberto Ramos, an economist at Goldman Sachs, assesses the need for greater normalization of interest rates, with a more accelerated monetary tightening movement, taking the Selic to a level above neutral.

“Significant pressures from cost, input prices, rising service inflation, as well as lingering political and fiscal risks could further taint the outlook for inflation in 2022,” he writes in a report.

According to Ramos, the recent dynamics of rising inflation and expectations for the index in 2021 and 2022, as well as fuel prices, require close monitoring and a higher interest rate.

Electric power: the villain of 2021

In the assessment of Gustavo Cruz, strategist at RB Investimentos, a worrying point of the indicator was the impact of electricity, which came in greater than expected, with an increase of 5%.

Cruz also draws attention to the news of the state that Aneel may double the extra fee on the electricity bill in September in order to support measures against electricity rationing.

According to the report, new internal government calculations point to the need for the level 2 red flag, currently at R$ 9.49 per 100 kilowatt-hours (kWh), to be raised to something between R$ 15 and R$ 20 .

“We have already seen such pressure from July to August, when there was an increase from R$6.24 to R$9.49. But now with almost R$ 20, imagine the pressure”, he says.

And he adds: “This could pressure the Central Bank to raise interest rates faster at the September meeting, which will be the peak of this impact and with the water crisis without showing signs that it will alleviate.”

In Cruz’s assessment, taking inflation into account, electricity will be the great villain in 2021, just as food was in 2020.

“I would be very attentive to the data, because it was not a result that I liked; it makes sense to think now about an even higher IPCA and a higher Selic at the end of the year”, he says.

Check out the methodology of the different indexes watching the video below:

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