Brazilian food inflation keeps getting smaller

Brazil’s mid-month inflation index (IPCA-15) rose 0.21 percent in October, in line with market expectations. Over the last 12 months, the index — a reliable bellwether for the official inflation rate — has risen 5.05 percent.

Prices rose in seven of the nine product segments tracked by the Brazilian Institute of Geography and Statistics (IBGE), led by transportation costs. Airfares increased by 23.75 percent, playing a significant role in the overall index.

In contrast, fuel prices fell in the first half of October. Rates at the pump should continue to go down as state-controlled oil company Petrobras announced a 4.1 percent cut in gasoline prices last week, although diesel rose 6.58 percent.

In Brazil, fuel price fluctuations have a significant impact on most supply chains, given the country’s reliance on trucks to transport goods.

The main silver lining in the latest IPCA-15 reading is that food prices fell for the fifth consecutive month, albeit at a slower rate than in September. Food weighs heavily in the basket of goods consumed by lower-income families.

Food inflation, as measured by IPCA-15, is down 0.54 percent year-to-date. Over the last 12 months, it has risen by a modest 0.69 percent. Official inflation rates also reflect this benign trend — food costs have decelerated in the past ten months through September, from an annual increase of 11.84 percent in November 2022 to a modest 0.88 percent hike last month.

Andre Perfeito, an economist and independent consultant, says the data is rather positive and “may reinforce analysts’ optimism about a benign inflationary environment.” 

However, he stresses that inflation will not carry as much weight in shaping Brazil’s future economic outlook as local fiscal dynamics and the rise in U.S. interest rates.

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