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The Broad National Consumer Price Index (IPCA) for February rose by 0.83%; however, what drew attention in the data was the slowdown in “underlying services” inflation: an important inflationary core for services for the Central Bank.
The “good years”
Services inflation is a key variable in Brazil’s current disinflation process. Carlos Thadeu Freitas Gomes, senior economist at asset manager Asset 1, calculated the monthly average of underlying services inflation during the “good years” since 2002.
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The “good years” are those in which inflation services inflation (underlying) was no more than 1.5 percentage points (pp) above the headline inflation target.
In January, the average underlying services inflation during the good years was 0.51%. However, the result for this indicator was 0.73% and was considered negative.
Gomes and services inflation
Gomes, however, has a relatively benign view of the role of services inflation this year. Concern over this issue is closely linked to the tightening of the labor market.
High wages affect inflation in labor-intensive services, which carry weight in the sector as a whole. But the jump in underlying inflation in January was significantly driven by higher bank fees, a type of service that is not particularly linked to wages.
The decline in underlying services
In any case, the good news was the decline in underlying services to 0.44% in the release of February's IPCA.
According to Gomes's calculation, this figure is even slightly below the February average in the “good years,” of 0.46%. An additional piece of news is that the four-week results that already include March figures from the Fipe and FGV CPIs point to underlying services below 3% in March.
Fernandes and services inflation
João Fernandes, an economist at the asset manager Quantitas, has a divergent view regarding services inflation. According to Fernandes, even excluding bank fees, services inflation has accelerated in recent months, in line with the rise in the IDAT-Labor Market, a wage indicator released by Itaú.
Therefore, while Gomes presents a more optimistic perspective on services inflation, Fernandes warns about the recent acceleration of this index, taking several factors into account, including the wage issue and the impact of specific items, such as movie tickets.
Image: https://pixabay.com/ carlitocanhadas
