showing acceleration compared to the increase of 0.44% in September, showed data from the Brazilian Institute of Geography and Statistics (IBGE) published this Friday (8).
Over the last 12 months, the Broad Consumer Price Index (IPCA) was 4.76%, exceeding the target ceiling pursued by the Central Bank (BC) for this year and the next, of 4.5%.
The results made XP revise upwards its expectations for the rise in prices this year and in 2025. The investment house’s assessment is that “all the determinants of inflation have worsened”.
For 2024, XP revised the IPCA from 4.6% to 4.9%. For 2025, expectations went from 4.1% to 4.7%.
The outlook is tougher than the market forecast of 4.59%. For 2025, analysts see inflation at 4.03%.
Among the highlights, XP lists the country’s accelerated economic growth, demand above productive capacity, the devalued exchange rate, the heated job market and the fiscal scenario.
“In fact, the unemployment rate and capacity utilization in industry are at their lowest/highest level in many years. The exchange rate reached the weakest level since 2021 (almost 20% accumulated depreciation in the year). Inflation expectations for 2025 have risen, approaching the upper limit of the tolerance range”, say the XP economists.
The IPCA result in October was driven by the Housing group, with a jump of 1.49%. Opening the data, due to the activation of the red flag 2 in the month, with additional charges on the account.
Despite the burden having been reversed to , the Food and Beverages group continues to exert strong pressure, with an increase in prices for food at home, which reached 1.22% in October, pressured by – chuck (9.09%), ribs ( 7.40%), sirloin (6.07%) and rump (5.79%).
The rise in meat prices was one of the points raised in the XP report to justify the rise in its expectations.
“Cattle prices rose beyond what we expected, increasing our projection for inflation for beef and other proteins. As a result, we raised our estimate for food away from home, including incorporating the upward surprise in October”, points out the analysis.
In addition to the increase in food prices, XP points to other pressures that should push inflation upwards.
“In general terms, service prices should continue to be pressured by heated domestic demand, while the prices of industrialized goods should also be impacted by the recent exchange rate depreciation”, concludes the XP analyst.
Interest under pressure
Due to this deteriorating scenario, XP issues a warning: the reaction of the Central Bank’s (BC) monetary policy should be “more intense than expected”.
This Wednesday (6), the BC’s Monetary Policy Committee (Copom) raised interest rates by 0.5 points, raising the Selic rate to 11.25% per year. The forecast was in line with what was expected by the market, which sees another increase at the same pace in December.
In a note, the board did not indicate what the next steps will be, also called guidanceand said that the pace should be dictated by the convergence of inflation to the target.
The scenario, however, pointed to more risk factors for rising prices than for falling prices.
Based on this scenario, XP predicts that the Selic will reach around 13.25%.
In addition to the points already raised, economists once again focus on the fiscal issue.
“Meeting the target of zero primary deficit requires difficult additional revenues, around R$200 billion. Parafiscal expenses are also increasing, which is not incorporated into the formal target, but puts pressure on public debt. This trend does not combine well with the low and stable inflation pursued by the Central Bank”, he concludes.
