Inflation in Brazil: when you cannot only blame the World Cup


Brazil is not only suffering from its terrible 7-1 defeat against Germany.

The country’s inflation is soaring: it breached the upper bound of the inflation target and rose to 6.52% y/y from 6.32% in May.

“Half of the monthly increase in prices (i.e., 20bp) came from World Cup inflation, namely hotels and air fares. Meanwhile, we were surprised on the downside by food & beverages and fuel deflation,” Barclays’ Bruno Rovai explains.

Inflation in the food and beverages group fell to -0.11% m/m, lower than our -0.03% forecast. Moreover, vegetables and fruits prices are still falling, according to daily surveys, which indicate that the negative trend could remain in place in July. As to the transportation group, despite the rise of 22% m/m of air fares, we were surprised by a stronger deflation in fuels (ethanol, gasoline and diesel), leaving the group inflation print at 0.37% m/m, against our 0.49% forecast. Finally, the World Cup is fuelling even personal expenditures prices more than Barclays had expected. Prices in this group rose by 1.57% m/m (we were forecasting 0.70%), with hotels (up by 25% m/m) responsible for two-thirds of the group inflation.

“No doubt that the World Cup had some impact, but we can’t put all the blame on it,” said Luciano Rostagno, chief strategist at Banco Mizuho in Sao Paulo quoted by Reuters. “Inflation will subside a bit after the Cup, but will probably stay close to the target ceiling this year and next even as the economy grows about 1 percent only,” he added.

So what’s next?

Analysts think pressures should be abating in July. Barclays expects the July IPCA to drop to 0.30% m/m, as these pressures start to abate after the tournament. Air fare prices are also expected to go down by -20% m/m as well food prices.

Regulated prices, however, should move in the other direction, pressuring the IPCA up as utility prices adjustment, especially in Sao Paulo, should rise by 15%in the month. In any way, these pressures are clearly temporary and should not change the BCB’s flight plan, which is to leave the Selic rate unchanged at 11.00%,”

The country’s central bank has reiterated that it has taken steps to contain inflation that will have to take effect next year, but economists predict prices will remain far from the 4.5 percent target beyond 2015 if the bank does not raise rates further.


About the Author

Ana Fuentes
Columnist for El País and a contributor to SER (Sociedad Española de Radiodifusión), was the first editor-in-chief of The Corner. Currently based in Madrid, she has been a correspondent in New York, Beijing and Paris for several international media outlets such as Prisa Radio, Radio Netherlands or CNN en español. Ana holds a degree in Journalism from the Complutense University in Madrid and the Sorbonne University in Paris, and a Master's in Journalism from Spanish newspaper El País.

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