MercoPress. South Atlantic News Agency

Brazil: January's IPCA lowest since 1994

The so-called Itaipu Bonus on electricity bills played a key role in achieving these figures, the IBGE explained

Inflation last month in South America's largest country reached 0.16%, January's lowest since 1994, the Brazilian Institute of Geography and Statistics (IBGE) announced Tuesday. The agency also noted that the main cause for such an unprecedented feat after the introduction of the real was the so-called Itaipu Bonus, a special discount on electricity bills benefitting some 78 million consumers. The Real Plan was implemented in July of that year.

After the Broad National Consumer Price Index (IPCA) stood at 0.52% in December 2024, the latest figures showed that prices have risen at a slower pace. January's figures were also the lowest since August 2024, when an IPCA of -0.2% was recorded. In January 2024, it stood at 0.42%. Interannually, the IPCA went up 4.56%, thus slightly piercing the Government's ceiling, albeit by a lower margin than December's 4.83%.

The inflation target set by the National Monetary Council (CMN) is 3%, with a tolerance of 1.5 percentage points more or less, i.e. a range of 1.5% to 4.5%.

From this year onwards, the target will be pursued in relation to the 12 months immediately past and not just the final result for December. The target will only be considered breached if it exceeds the tolerance interval for six months in a row.

The main factor responsible for easing inflation came from the sub-item residential electricity, which became 14.21% cheaper. This reduction had an impact of 0.55 percentage points (p.p.) on the month's result. The reduction is the smallest since February 2013, when it fell by 15.17%.

With electricity cheaper in January, the housing group fell by 3.08%, representing an impact of 0.46 p.p. on the IPCA.

At the other end of inflation, food and transport prices put upward pressure on the index. Transport rose by 1.3%, an impact of 0.27 p.p. while airline tickets rose by 10.42% and urban buses posted a 3.84% surge after increases were detected in 7 of the 16 locations surveyed by the IBGE.

According to the IBGE, food and beverages account for around 21.69% of their expenses for people earning up to 40 minimum wages. Hence, the government is considering reducing import tariffs to make food cheaper. The item grew 0.96% in January, representing an impact of 0.21 percentage points (p.p.) on the IPCA. The biggest pressures among the food sub-items came from ground coffee (8.56% and an impact of 0.04 p.p.), tomatoes (20.27% and 0.04 p.p.) and carrots (36.14% and 0.02 p.p.). Coffee is expected to keep rising, according to producers.

The IPCA measures the cost of living for families earning between one and 40 minimum wages. Prices are collected in the metropolitan regions of Belém, Fortaleza, Recife, Salvador, Belo Horizonte, Vitória, Rio de Janeiro, São Paulo, Curitiba, Porto Alegre, as well as the Federal District and Goiânia, Campo Grande, Rio Branco, São Luís, and Aracaju.

Although the IPCA has been calculated since 1980, the IBGE considers that the current historical series began in 1994, with the beginning of the Real Plan introducing a new currency, which would hinder comparisons. “Before the Real Plan, there were other economic plans, there was hyperinflation, so we ended up putting this Real Plan milestone. This January figure is the lowest in the index's historical series,” explained survey manager Fernando Gonçalves.

A reduction in agrifood supplies also pushed prices upwards. “Carrots have a concentration of production in Minas Gerais, Bahia, and Goiás, sending less product to the market, so there was a reduction in supply,” Gonçalves explained. He added that tomato production was also influenced by the weather. “Tomatoes also had a problem with very heavy rain. This limited production a little. Some fruit got blemished, and January had this problem of reduced production,” he said.