09/03/2024 – 6:00
The National Electric Energy Agency (Aneel) announced that the red tariff flag level 2 will come into effect in September. The announcement this Friday, the 30th, means higher costs for the generation of electric energy, which makes the electricity bill more expensive for consumers, with a consequent impact on national inflation.
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The higher price increase in electricity directly affects the IPCA (Broad Consumer Price Index), which measures the country’s official inflation. The weight of electricity in the index is almost 4%. As a result, analysts project the impact on the IPCA as early as September and inflation at the limit of the target ceiling at the end of 2024, of 4.5%, as established by the Central Bank (BC).
Andréa Angelo, Inflation Strategist at Warren Investimentos, explains that the firm had already projected that inflation would reach 4.45% by the end of 2024, considering the yellow flag. “The estimated impact of the red flag on the IPCA is 0.43 percentage points. We are considering that the red flag will continue throughout September and October, and will return to yellow in November and December.”
For residential electricity bills, Warren estimates an average increase of 9.7% in September. It is worth noting that, with the red flag, the tariff increases by R$7.877 for every 100 kilowatt-hours (kWh). The average consumption in a home in an urban area is approximately 150 kWh to 200 kWh.
For Leonardo Costa, an economist at ASA, the IPCA in September should be 0.76% and 4.4% for the year. ASA also expected the tariff flag to remain yellow for the month. “The drought, which was worse than expected due to seasonal factors, justified the increase in the price of electricity. We expected a yellow flag for the month, with a net impact of 35 basis points in our projection, but the impact will be 46 basis points now.”
According to Leonardo’s projection, the average increase in residential electricity bills should be 11.5%. It is worth noting that taxes on electricity bills are calculated based on the value of the bill, meaning they will also be applied to the extra fee. Taxes on the energy bill – such as ICMS, PIS and COFINS –, the transmission fee and the contribution for public lighting (COSIP or CIP – depending on the municipality) represent almost half of the total bill.
Copom Meeting
The Central Bank’s Monetary Policy Committee (Copom) will meet on the 18th to define the interest rate. The increase in energy tariffs, which has a direct impact on inflation, adds another point of pressure on the group’s decision.
“Rising inflation, combined with exchange rate pressure, creates a challenging scenario for keeping expectations anchored within the target. Given this, Copom should consider raising the Selic rate at its next meeting, probably by 0.25 to 0.50 percentage points, as a measure to contain this inflationary pressure and prevent an even greater deterioration in market expectations,” says Felipe Uchida, head of the quantitative analysis department and partner at Equus Capital.
The Focus Bulletin, a document from the Central Bank with market projections for economic indicators, points to an IPCA of 4.26% this year in the report released this week, which does not include the announcement made on Friday by Aneel. The previous week the projected increase was 4.25%.
“A ‘red flag’ in inflation indicates significant concern about rising prices, which could spiral out of control and negatively impact the economy,” says Alex Andrade, CEO of Swiss Capital Invest.
Red flag
The flag of this color had not been raised since August 2021. A sequence of green flags was initiated in April 2022 and interrupted only in July 2024 with a yellow flag, followed by a green flag in August.
What does each color mean and how much does it cost?
- Green flag: favorable conditions for energy generation. The tariff does not suffer any increase;
- Yellow flag: less favorable generation conditions. The tariff increases by R$0.01885 for each kilowatt-hour (kWh) consumed;
- Red flag – Level 1: more expensive generation conditions. The tariff increases by R$0.04463 for each kilowatt-hour kWh consumed.
- Red flag – Level 2: even more expensive generation conditions. The tariff increases by R$0.07877 for each kilowatt-hour kWh consumed.
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