Inflation slows to 0,53% in January, says IBGE.

Reuters Brazilian inflation slowed in January compared to the previous month, but food and fuel prices continued to weigh on consumers' wallets at the beginning of 2023, keeping the Central Bank under pressure amid government attacks on the country's interest rate level and the conduct of monetary policy.

In January, the Broad National Consumer Price Index (IPCA) rose 0,53%, slowing after having advanced 0,62% in December, according to data released by the Brazilian Institute of Geography and Statistics (IBGE) on Thursday.

This led the index to accumulate a 5,77% increase over the 12 months ending in January. The inflation target for this year is 3,25%, with a margin of 1,5 percentage points above or below, as measured by the IPCA.

Analysts polled by Reuters had expected a 0,57% increase for the month and a 5,80% increase over the past 12 months.

In 2022, inflation as measured by the IPCA closed with an accumulated increase of 5,79%, mainly influenced by food prices, and the pressure now is for it to return to within the tolerance band.

Last week, the Central Bank maintained the Selic basic interest rate at 13,75% and stressed that fiscal uncertainty and the deterioration in market inflation expectations increase the cost for the monetary authority to achieve its targets.

After that, it once again became the target of criticism from President Luiz Inácio Lula da Silva, who complained about the level of the Selic rate and dismissed the formal independence of the central bank as "nonsense," in addition to questioning whether the inflation target was too low, forcing a deterioration in economic activity.

Amidst all this, in the minutes of its last meeting, the Central Bank signaled its support for the package of fiscal measures presented by the Finance Minister, Fernando Haddad.

The IPCA (Brazilian consumer price index) was impacted in January by the Food and Beverages group, which rose 0,59%, contributing 0,13 percentage points to the overall index increase. Even so, this segment slowed its growth compared to the 0,66% rate seen in December.

Food items were heavily influenced by the sub-items potatoes and carrots, which jumped 14,14% and 17,55%, respectively.

"The increases in these two cases are explained by the large amount of rainfall in the producing regions. On the other hand, we observed a 22,68% drop in the price of onions, due to the greater supply coming from the Northeast and South regions, an item that had an increase of more than 130% in 2022," said the research manager, Pedro Kislanov.

The Transportation group had the second-largest positive impact on the IPCA in January, accelerating the increase to 0,55%, compared to 0,21% in the previous month, and contributing 0,11 percentage points to the overall index. Fuels rose by 0,68%, driven by increases in gasoline (0,83%) and ethanol (0,72%) prices.

Of the nine groups of products and services that make up the IPCA (Brazilian Consumer Price Index), only Clothing showed a negative variation in January, of 0,27%.

"It should be noted that this was the first drop in the group after 23 consecutive months of increases, with the last decline having been recorded in January 2021. The decline in January 2023 is due to the fact that several stores applied discounts to the prices that were practiced in December, for Christmas," explained Kislanov.

The Central Bank worsened its inflation estimates and reported that, in its baseline scenario, inflation estimates are at 5,6% for 2023 (compared to 5,0% in the previous meeting) and 3,4% for 2024 (compared to 3,0%).

A Focus survey conducted by the Central Bank with a hundred economists shows that the market expectation is that inflation will end this year at 5,78% and 2024 at 3,93%.

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