by Camila Moreira
SAO PAULO (Reuters) – The IPCA-15 accelerated its rise significantly in February and reached the highest level for the month in six years, with the seasonality of education costs, which took the 12-month rate to close to 11. %, at a time when the Central Bank struggles to control the high inflation in the country.
In February, the Extended National Consumer Price Index-15 (IPCA-15), a preview of Brazilian inflation, rose 0.99%, compared to a rate of 0.58% in January.
This is the highest monthly variation for a month of February since 2016 (+1.42%), according to data released this Wednesday by the Brazilian Institute of Geography and Statistics (IBGE).
As a result, in the 12 months through February the index accumulated a rise of 10.76%, from 10.20% in January, the highest level on this basis of comparison since February 2016 (10.84%).
This rate is more than double the ceiling of the inflation target for 2022 –3.50%, with a margin of plus or minus 1.5 percentage points, as measured by the IPCA.
February’s results were well above expectations in a Reuters poll for gains of 0.85% in the month and 10.60% in 12 months.
In February, the prices of eight of the nine groups of products and services surveyed rose. The greatest variation and the greatest impact came from the Education group, with an increase of 5.64%, compared to the 6.69% increase in regular courses due to the readjustments normally adopted at the beginning of the school year.
Food and Beverages also stood out, with rising costs accelerating to 1.20% in February, from 0.97% in the previous month. The highest increases were registered in tubers, roots and vegetables, such as carrots (49.31%) and potatoes (20.15%).
Transport, on the other hand, left behind the 0.41% drop seen in the first month of the year to rise 0.87% in February, with emphasis on the 2.01% increase in owned vehicles. At the same time, fuels registered stability in February, as diesel oil (3.78%) and gasoline (0.15%) rose, but ethanol (-1.98%) and vehicle gas (-0.36% ) recorded falls.
The exception among the groups was Health and personal care, with a slight decrease in prices of 0.02%, after the rise of 0.93% in January.
The Central Bank started 2022 by raising the Selic interest rate by 1.50 percentage points for the third consecutive time, to 10.75% per year, but indicating a reduction in the pace of adjustment at the next monetary policy meeting.
The Focus survey shows that experts consulted by the monetary authority see the Selic at 12.25% at the end of this year, with inflation forecast at 5.56%.
HIGH INFLATION, INTEREST UP, DOLLAR DOWN
However, “if inflation continues to pressure, the expectation of interest rate increases will be adjusted upwards,” Bruno Mori, economist and financial planner at Planor, told Reuters. Tighter monetary policy tends to cool consumer spending and, consequently, contain the rise in prices.
At the same time, said Mori, bets on a higher level of the Selic rate at the end of the BC’s monetary tightening cycle tend to devalue the dollar against the real, as a greater interest rate differential between Brazil and advanced economies makes the domestic currency more attractive to foreign investors looking to profit from currencies that offer higher returns.
While the Selic continues to rise, interest rates in the United States remain close to zero – and even if they rise, as predicted by the market and signaled by the US central bank, they will still be far from the Brazilian rate.
The rate of return embedded in forward-delivery real contracts – the so-called NDFs, vehicles through which foreigners can operate the Brazilian currency, which is not convertible – is around 12% per year, considering a 12-month term. Thus, it is around the highest levels since August 2016. In August 2020, the implicit interest was at 1.5%.
This rate follows Selic’s movements. By way of comparison, the one-year rate for the Chilean peso – which has also been featured this year for reasons similar to the real, up 8.5% in the period, the second best global performance – was at 7.1% .
This Wednesday, after the release of the IPCA-15 in February, the spot dollar reached 4.9978 reais at the lowest of the day, down 1.05%. The real was the best performer among the major currencies not only in this session, but also in February (+5.9%) and in 2022 (+11.2%).
Despite the strong price pressure, Bacen has shown concern with the adoption of fiscal policies that seek to control inflation in the short term, emphasizing that the measures can generate the opposite effect, of rising prices, in the midst of discussions held in the Executive and the Congress on a possible tax cut to ease fuel charges.
(Additional reporting by Luana Maria Benedito)
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