Three reasons inflation could be lower in 2022

Energy was one of the bad guys in inflation last year, says IBGE | Photo: Marcello Casal Jr./Agência Brasil

2021 ended with annual inflation of 10.06%, the highest since 2015, according to the Brazilian Institute of Geography and Statistics (IBGE). The result was well above the ceiling of the Central Bank’s target, which was 5.25%, and the midpoint of market expectations in January last year, which was 3.5%.

A series of factors explain the sharp rise: food and fuels were stimulated by the rise in commodity prices and the rise of the dollar; energy has become more expensive due to the worst water situation in 91 years, and the stimulation of demand has stimulated consumption.

This scenario is not limited to Brazil. The price increase was worldwide. In the United States, the 12 months ending in November saw inflation of 6.8%, the highest since June 1982, according to the United States Bureau of Labor Statistics. And in the countries that make up the Organization for Economic Co-operation and Development (OECD), prices rose 5.8%, the highest since May 1996.

For 2022, in Brazil, the median of market expectations is 5.03%, according to the Central Bank’s Focus report. Certain factors help to explain this downward trend in inflation, underlines XP Investimentos: better prices for food at home; more contained energy and demand putting less pressure on industrial goods; and fall in regulated tariffs favored by the deflation of electricity.

However, Itaú estimates that inflation is likely to remain higher in the first three months of the year, impacted by adjustments typical of the period, such as city buses and school fees. “The movement is always permanent,” adds Rodrigo Franchini, partner at Monte Bravo Investimentos.

A contribution to the fall in inflation could come from wholesale prices, which rose 17.7% last year, according to the IGP-DI, of the Fundação Getulio Vargas (FGV). For this year, Bradesco expects a much smaller increase, reflecting the expectation of a reasonable harvest, the reshuffling of global production chains and the stabilization of Chinese demand for iron ore.

In contrast, services come, according to analysts at XP. They believe that even with rising interest rates, slowing economic activity and falling disposable income, the readjustments will be heavier because they reflect past inflation.

Another factor that may be contributing to inflation this year is related to electoral uncertainty and the behavior of the exchange rate, itaú economists point out.

1) Inflation of a wiser household diet

The broker expects the household food group to experience an increase of 4%, against 7.94%, recorded in 2021. “[Ela] is compatible with a slight fall in the prices of agricultural raw materials, a stable exchange rate (already at a much depreciated level) and better weather conditions.

XP points out that this number could be lower without supply issues and the high costs of fertilizers and pesticides.

One source of concern, however, is the lack of rain in some areas, caused by the La Niña weather phenomenon. According to Itaú BBA, rains were light in December in the southern region and intense in parts of the northeast and in areas such as central and northern Minas, Goiás, Pará and most of Mato Grosso.

“Maize is already affected by the intensification of the drought and concerns are now focused on soybeans”, underline the agro-industrial analysts of the bank.

2) Fewer surprises with industrial goods

In the case of industrial goods, which experienced an average increase of 11.3% last year, XP Investimentos considers that the slowdown in domestic demand, the normalization of the global supply chain and energy prices more stable should help to avoid expressive high prices for the consumer. . The projection is for a 4.8% expansion.

But, for now, according to Itaú, inflation in industrial goods remains under pressure and persists due to the effects of bottlenecks in segments such as autos and electronics.

Credit insurer Euler Hermes points out that disruptions in the global supply chain will remain high until the second half of 2022, due to new outbreaks of Covid-19 around the world, China’s “zero Covid” policy and volatility in demand and logistics during the Chinese New Year. . Normalization should take place from the second half of the year.

3) Energy must support regulated tariffs

Administered prices, another major villain in the domestic budget, are expected to experience a much smaller increase compared to 2021. The brokerage is forecasting a drop from 17.2% to 5.1%, driven by the anticipation of deflation in the market. ‘electricity. The projection is for a 5% retraction in the prices of this item.

But XP considers that this drop could be even more important if the restoration of the reservoirs continues at the current level. The Southeast / Midwest subsystem, the country’s main electricity producer, was operating at 31.62 percent of capacity on Sunday, according to the National Electricity System Operator (ONS).

“Gasoline inflation is also expected to be much lower, given that current prices already reflect oil and exchange rates at high levels,” said the broker.

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