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Inflation rate in Brazil closes 2016 at lowest level in three years

Staff Writer | January 12, 2017
Brazil’s official inflation rate ended 2016 at its lowest level in three years.
Inflation rate in Brazil
Brazilian economy   The National Broad Consumer Price Index
The National Broad Consumer Price Index (IPCA) closed 2016 at 6.29% - below the inflation target ceiling of 6.5% and much lower than the same index in 2015 (10.67%). The deceleration of prices seen in 2016 was also the highest in the last decade.

The data comes from the Brazilian Institute of Geography and Statistics (IBGE), published this Wednesday (11 January). The result was strongly influenced by the expressive drop in the price of important staple items for Brazilians, particularly food.

The IPCA rate for the month of December, also published today, reached 0.30% - the lowest for the month since 2008 (0.28%). In the last month of 2016, food prices increased only by 0.08% vis-à-vis November.

The actual index was actually lower than the Central Bank of Brazil’s (BCB) forecasts. In its last Quarterly Inflation Report, published in December last year, the BCB predicted a deceleration in the cost of living in Brazil to 6.5%, or the maximum tolerance limit of Brazil’s inflation target regime.

The Central Bank expects the cost of living to continue to decelerate in the next few months. At the end of 2017, the forecast is for the IPCA to drop to 4.4%.

If the prediction confirms, it will mean that Brazil will end the year with inflation below the centre of the inflation target for the first time since 2009.

Items heavily consumed by Brazilians showed significant decreases last month. One of the most important ones was potato, which saw a 16.12% price drop.

The list follows with pinto beans (-13.77%), brown beans (-4.39%), UHT milk (-3.97%), açaí (-3;47%), tomato (-2.04%), chocolate bars and bonbons (-1.80%) and food from take-out and restaurants (0.12%).

In addition to food, the December results were also helped by electricity prices, which fell by 3.70%. The IBGE explained that this drop in prices is due to a return of the “green tariff band” on 1 Decembe in place of the yellow tariff (the latter adds R$ 1.50 to electricity per 100 killowatt-hours consumed).

Also according to the institute, there was an 11.49% drop in electricity bills in Porto Alegre (state of Rio Grande do Sul), a reflection of the 16.28% reduction in tariffs by the utility company put in place on 22 November.

In Rio de Janeiro, the average drop in electricity bills (-4.98%) reflected an 11.73% price decrease by one of the local utility companies, in turn the result of a price review that took place on 07 November.