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sexta-feira, abril 13, 2012


The devil is in the details

Source: Tatiana Pinheiro

Without a doubt the consumer price inflation was lower than expected in 1Q12 (1.22%), in terms of both the consensus expectation (1.49%) and the BCB's reference scenario (1.86%) at the beginning of this year. We were surprised as well; our IPCA expectation was 1.37% for 1Q12. Additionally, there was confirmed deflation in the São Paulo electricity tariff, which is good news for the inflationary backdrop. This note will focus on the pipeline for IPCA in the upcoming months.

Nevertheless, we believe it is worthwhile to go into detail about some events that may occur in the short term. First, the electricity tariff revision in São Paulo was finally determined ; it was originally scheduled for 2011, but was delayed to 2012, and will be applied in July this year. Aneel, the Brazilian electricity regulatory agency that regulates the prices in the sector, proposed an 8.81% cut for final customers (a 5.14% core-tariff reduction + additional reduction from financial components). The proposal will be subject to a public hearing from April 12 until May 11, after which the final electricity tariff readjustment will be defined for 2012 we estimate it might reach -6.5%, taking into account the electricity tariff revision of -8.81%, the cost of the delay in applying the revision, and the inflation accumulated in the last 12 months. The cost of the delay will be divided into three installments, to be applied in the next three years, which means that 1/3 of -8.81% will be applied this year, and we estimate the 12-month accumulated inflation of approximately 5%. If our estimate is confirmed, the total impact on the IPCA headline will be -7 bps, which will be slightly higher than we expected (-6 bps). This event for July IPCA is relevant because it might curb monthly inflation to close to zero. The seasonal pattern of inflation from May to July is very favorable, mainly because there is no pressure coming from foodstuff inflation, there is deflation in ethanol prices as a result of the beginning of the harvest, electricity tariff readjustments are the main regulated prices to be determined, and there are no significant pressures coming from apparel and services. That said, our forecast for cumulative inflation in 3Q12 is 0.65%, while the consensus is 0.94%.

With respect to the very short term (April and May), herewith a list of inflationary pressures: the price of medicine was readjusted about 2.81% on average (on April 1), there was a hike in the cigarette prices of 24%, thanks to the tax increase (on April 6), the water and sewer tariffs had a readjustment of 11% on average in some cities with weights about 22% in the regional composition of the IPCA (between the end of March and beginning of April), the crop shortfall of beans and ground crops off season (in April), some hike in meat prices (in May), and the seasonal hike in apparel prices. Additionally, in April it is likely that the fixed telephony tariff will register an increase of approximately 1% in prices due to a hike in the tariff of fixed-to-mobile calls for all cities that compose the IPCA, except São Paulo. Thus, we forecast 0.65% m/m for April IPCA (versus a consensus forecast of 0.54% m/m) and 0.40% m/m for May IPCA (versus a consensus forecast of 0.5% m/m), and our forecast for cumulative inflation in 2Q12 is 1.15%, while consensus stands at 1.27%.

Looking into 2H2012, we only find sources of inflationary pressures from September on, considering a baseline scenario of no international disruption. The IPCA Index is expected to inherit pressures such as: (1) high inflation in 2011 will be taken as the reference for indexing annual wage readjustments in several economic sectors, which for the most part takes place in 2H12; and (2) the economic recovery is poised to intensify in 2H12, which should promote an inflation acceleration of the services, semi-durable and non-durable goods prices. The two factors are linked to the recent monetary easing. The first one is a result of a tight labor market. The second factor is related to the lagged effects of the aggressive monetary easing started in 3Q11. However, at the end of the day, despite all the inflation pressure that is expected in 2H12, the inflation accumulated in 2012 should be 5%, which would be a much better outcome than 2011 inflation.
In our opinion, the heating up of domestic demand should have a larger impact on 2013 inflation, and without favorable exogenous shocks in regulated prices and service prices hovering around 9%.

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