IPCA relief in June should be punctual, according to analysts

Brazilian inflation registered a slowdown in June, with the IPCA reaching 0.16% in the month. The result was driven by the relief in the food group and the drop in fuel prices, especially ethanol. Even so, economists assess that the improvement is temporary and that the inflationary scenario remains challenging.

According to Maria Regina Silva, editor of Broadcast, the index was below the minimum expectations raised by Projeções Broadcast, which pointed to an increase of 0.26%.

In the 12-month period, the rate of 4.64% also surprised positively, remaining below the expected floor of 4.75%. However, this level still exceeds the inflation target ceiling, set at 4.5%.

Ethanol and food provide relief
The main factors that contributed to the slowdown in the IPCA in June were the transport group, influenced by the drop in ethanol, and the food group.

Ethanol showed a negative variation of around 3%, a direct result of the harvest in full swing, which increased production and expanded the product's supply.

Food recorded deflation of 0.24%, driven by the decline in items such as coffee, which had risen significantly in previous months, and fresh foods, which tend to have lower prices at this time of year.

Core and diffusion index also decline
Other internal IPCA indicators reinforce the relief reading in the short term. According to calculations by Terra Investimentos, the diffusion index - which measures how much inflation is spread across the economy - fell to the 53% range in June, after registering 65% in May.

In addition, the core, services and underlying services averages, an indicator closely monitored in monetary policy decision-making, also lost strength compared to the previous month. In the 12 months up to June, only the industrial goods item showed acceleration.

Perspective for the Selic and uncertainties ahead
The June IPCA result reinforces, in the very short term, expectations of a further reduction of 0.25 percentage points in the basic interest rate in the August Copom.

However, Maria Regina Silva highlighted that relevant uncertainties remain, especially related to the effects of the recent advance in oil, the impact of which may not yet have been fully absorbed by several items in the basket.

Experts reinforce that caution must be maintained and that the next steps of monetary policy, starting in August, may remain open. The general outlook is for inflation above the target ceiling in 2026.

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Source: CNN