October 16, 2021

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Epidemiological effect: lower consumption leads to lower prices for services even with higher inflation;  See the items that fell the most |  Economie

Epidemiological effect: lower consumption leads to lower prices for services even with higher inflation; See the items that fell the most | Economie

In total, ten services recorded a downturn in their backlog between January and August of this year (see chart below), Refer to data from the Brazilian Institute of Geography and Statistics (IBGE), which is responsible for calculating the Consumer Price Index (IPCA), the official inflation indicator in Brazil.

Notably, the IPCA accumulation in the year to August was 5.67% which is the highest for the first eight months of the year since 2015 when it was 7.06%.

In all, ten services posted negative inflation rates in the cumulative period between January and August – Photo: Economy/G1

The service sector is the most important in the Brazilian economy. It has been hardest hit by the pandemic, and thus is the one to suffer the slowest and uneven recovery. As of July, of the five main activities that make up the sector only Services provided to families have not recovered the losses caused by the health crisis, Operating 23.2% below the February 2020 level. The ten services with negative IPCA rates in 2021 are part of this activity.

The biggest contraction among services was the drop in airfares, with their average prices dropping 33.81% in the year, followed by order transportation, a decrease of 14.33%.

According to FGV-Ibre CPI coordinator André Braz, “the pandemic helps to understand why prices for these services are lower in the year.”

In light of the measures to restrict the movement of people to contain the Corona virus, the consumption of some of these services has decreased. In the case of airline tickets, the sector is just beginning to recover, as the movement of people is beginning to recover further. He noted that with the transfer by application, there has been a decrease in the flow of claimants.

Braz hopes that while these two services posted a contraction in the year, both had positive rates in the 12-month period — airfares increased by 30.15% and transportation per order increased by 6.06%. This means that the average prices for the two services are more expensive than in August of last year, but lower than in December.

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The FGV specialist pointed to the same demand impact from the pandemic as a possible explanation for the contraction in interstate bus services, voluntary vehicle insurance, higher education, youth and adult education, school transportation and tourist packages.

There have even been cases where bus companies have broken down because people have stopped getting on the bus. In the insurance industry, no one needs to insure a car because they won’t be driving it. Same with the package tour, where no one can travel. In the case of higher education, universities have given discounts due to the change from classroom to distance learning classes.

Deflation behind services

Of the 377 products and services that make up the IPCA, 59 recorded negative rates between January and August. Of these, the vast majority (35) are foods, 14 are non-food products and 10 are services.

High prices were widespread among most of the products and services examined to make up the inflation index – Image: Economy/g1

According to the IBGE National Consumer Price Index System Price Analyst André Almeida, it is not generally possible to indicate the reason for the shrinkage of these items in the consumption basket examined to calculate the index.

“Both of these items [em deflação] He explained that there are various factors affecting this drop in prices.

Regarding food, Almeida pointed out that for those who live in nature, there are climatic influences that affect production, as well as the seasonality of the harvest of each product.

In the cumulative period between January and August, 14 non-food products posted negative inflation – Photo: ECONOMY/G1

“In the case of airline tickets, the context of the pandemic can influence price formation, just as fuel can also have an impact,” the researcher said.

Almeida also stressed the importance of noting, in addition to the index accumulated in the year, also the index accumulated in 12 months, in order to better assess the effects on the price variance of a particular product.

“In the case of potatoes for example, the supply in the market was higher at the beginning of the year, which caused prices to drop [-27,94% no acumulado do ano]. Already in the past 12 months, she has been laid off [9,90%]Because the crop was lower last year.”

The same happens for rice, which accumulates a decrease of 10.11% per year, but records an increase of 32.68% in 12 months.

Inflation target and prospects

The central government target for inflation in 2021 is 3.75%, and the tolerance range is from 2.25% to 5.25%. To achieve this, the central bank raises or lowers the basic interest rate of the economy (Selic).

Financial market estimates are already far from BC goals: in the latest Focus survey, which compiles analyst expectations, Projected inflation for this year has already reached 8.35%.

For 2022, inflation is also showing signs of slipping off the line: the financial market raised its estimate from 4.03% to 4.10%. Next year, the central inflation target will be 3.5% and will officially be met if it fluctuates from 2% to 5%.

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