Our View: Bad composition, both from our perspective and the market’s perspective (which expected a stronger number than ours, but with higher food at home – an item that came aligned with our expectation).
The IPCA for July rose 0.38% MoM, above our expectation (0.32%) and the market’s (0.35%).
The main surprises, compared to our estimate, came from industrial goods (+5bps), with highlights in personal hygiene (+2bps), new cars (+1bp), and electronic devices (+1bp) – which seem to indicate the first signs of currency depreciation. For the market, the magnitude of the surprise was similar (+4bps).
Additionally, core services also came in more pressured (+2bps), in a more generalized manner: food away from home, car repair, banking services, and cinema, theater, and concerts (+1bp each). It is worth noting that several important items repeated the variation seen in the IPCA-15 – and, therefore, were not responsible for the surprise – but had already surprised to the upside, particularly voluntary vehicle insurance and condominium fees. Compared to the market’s estimate, the surprise was similar (+1bp).
On the other hand, food at home was very much in line with our projection, while it was a significant downside surprise for the market (-5bps) – which explains our headline being below the consensus. Therefore, in terms of the composition of core items, the surprise was very similar.
This indicates a negative signal for the Central Bank, which explicitly mentioned in the last Copom decision that its reaction function gives significant weight to the labor market, which has a predominant impact on services and underlying services. It’s important to remember that we heard hawkish comments from Galípolo yesterday, reinforcing that the Committee will not hesitate to act if necessary, with interest rate hikes.
In the 12-month accumulated inflation metric, some highlights: (i) headline continued to accelerate (to 4.50% – the upper limit of the tolerance band of the target); (ii) core services also increased, reaching the most pressured level (4.91%) since March; (iii) an even stronger number for core excluding food away from home (5.09%); (iv) industrial goods (1.28%) in constant acceleration since May.
For more information, please check our IPCA Jul/24.
