Throughout the pandemic, inflation of agricultural and industrial raw materials skyrocketed in the country. A sign of this is the advance of the IPA (Broad Producer Price Index), which reached 43.59% in the 12-month period up to April, according to FGV-Ibre (Brazilian Institute of Economics of the Getulio Vargas Foundation).
The situation worries experts, since the sequence of increases felt by companies tends to cause new transfers to final consumers.
According to economist André Braz, from FGV Ibre, the increase observed in the period is the largest since the beginning of the Real Plan. The IPA captures the variation in the price of goods in inter-company transactions – that is, until the door of the factories, in the stages prior to the final consumption of goods and services.
The triggering of the indicator reflects a combination of two factors. The first is the increase in the prices of commodities, such as soybeans and iron ore, on the international market.
Added to this is the devaluation of the real against the dollar, in a context of lower interest rates and uncertainties about the direction of the Brazilian economy. The American currency above R $ 5 contributed to the price of raw materials being even more pressured.
“Our currency depreciated in a scenario of low interest and uncertainty. Meanwhile, there have been explosive increases in the prices of products such as iron ore and soybeans. The scenario impacts prices for producers and consumers ”, says Braz.
In April, there was a deceleration in the rate of increase in the IPA, to 1.84%, after an increase of 3.56% in March. Even with the smaller advance last month, companies continue to be pressured by the rising cost cycle, which supports the projection of new transfers to consumers, signals the economist.
“At the beginning of the pandemic, businessmen had some scope to hold back on rising prices. The point is that such a long-term advance in commodities was not expected. For a company to survive, there is no way to charge very low prices. So, either pass on the cost increases or go out of business, ”he observes.
“It is certain that we will have a rise in inflation longer than many imagined at the beginning of the pandemic. There is a great deal of pressure from commodities. The pass-through to the consumer must occur with the increase in demand and the stress on the companies’ cash flow ”, observes economist Fábio Astrauskas, president of the consultancy Siegen and professor at Insper.
Official indicator of inflation in the country, the IPCA (National Consumer Price Index) has accumulated an increase of 6.76% in 12 months until April, according to IBGE (Brazilian Institute of Geography and Statistics). Although it is lower than the advance in prices of raw materials used by producers, the indicator is above the target pursued by the Central Bank in 2021.
The center of this year’s inflation target is 3.75%, with a limit of 5.25%. The 6.76% mark is the highest since November 2016.
In an attempt to curb prices, the Central Bank’s Copom (Monetary Policy Committee) increased the basic interest rate at the beginning of the month by 0.75 percentage points, which led the Selic rate to 3.50% per year . After the meeting, the Copom indicated a new increase of the same magnitude in June, to 4.25%.
In a note, the Brazilian Association of the Food Industry (Abia) reports that “the increase in the prices of agricultural commodities and inputs, the exchange rate variation and the impact of the pandemic have influenced the costs of the entire production chain of the food industry”.
“The industry does not have the capacity to absorb 100% of the costs, which end up in the final price of food”, declares the president of Abia, João Dornellas.
In the director’s view, the federal government could reduce import taxes, in an attempt to reduce production costs and, consequently, the impact on final prices.
The IPA accounts for 60% of the composition of the IGP-M (General Price Index – Market), also calculated by FGV Ibre. The IGP-M, in turn, is frequently used in the adjustment of rental contracts in the country. In other words, the increase in commodities may have an impact on the rental of commercial and residential properties.
In the 12-month period up to April, the IGP-M registered an increase of 32.02%. Amid the progress, a project in the Chamber of Deputies seeks to fix the IPCA as a ceiling for the correction of rental contracts.
In addition to the IPA, the IGP-M is composed of two other indicators: the IPC (Consumer Price Index) and the INCC (National Construction Cost Index). The IPC has a weight of 30%, while the INCC accounts for a 10% share.