Inflation: Despite improvement, economists warn of pressure on services

Brazilian inflation has returned to the center of attention of economists and consumers concerned about rising prices in the country.

And the May preview, the IPCA-15 calculated by IBGE (Brazilian Institute of Geography and Statistics), should still show signs of pressure, despite a marginal improvement, according to economists interviewed by CNN Money.

The projections of Lifetime Gestora de Recursos and Daycoval are the same: an increase of 0.53% in the month. If confirmed, the result will be better than the 0.89% of the previous IPCA-15 and the 0.67% of the IPCA (Broad Consumer Price Index) in April.

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"We saw a good part of the increase in fuel and food prices stay in the month of April", observes Marcela Kawauti, chief economist at Lifetime, highlighting, however, that "May also receives a little increase".

Although these prices continue to be pressured by the war and the expectation of an El Niño that should affect agribusiness production, it is another problem that Kawauti shines the spotlight on: core inflation.

The core items seek to identify the long-term trend in prices, excluding volatile items such as food and fuel. The economist highlights that these groups suffer from the "obvious and direct effects" of the war.

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"Now, the core part, this will be important because it will help us see if there was any type of pass-through of the full index to the rest of the economy. And it is this contamination that probably worries the Central Bank when it talks about second-round effects", he points out.

In the statement of its latest monetary policy decision, the BC (Central Bank) highlighted among its fears for rising prices "a de-anchoring of inflation expectations for a longer period, with longer horizons incorporating potential second-round impacts of restrictions on the supply of oil and its derivatives".

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In this way, Leonardo Costa, economist at ASA, reinforces that, despite the improvement in the margin, "the result should not bring complete relief".

"Core inflation should remain high, especially services, which remain the main focus of concern for the Central Bank and one of the factors that support the conservative stance of the monetary authority", he states.

In its latest statement, the Copom (Monetary Policy Committee) of the BC also highlighted among the risks "a greater resilience in services inflation than projected due to a more positive output gap".

In this package, Daycoval's economic research department specifically warns of rising prices for airline tickets, eating out and items more sensitive to economic activity, such as labor-intensive items.

"As a result, underlying services (the core of service inflation) should remain at a high level and continue to pose a challenge for the Central Bank", he points out.

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Source: CNN