Epidemiological effect: lower consumption leads to lower prices for services even with higher inflation; See the articles that dropped the most

In total, ten departments recorded a decline in their order book between January and August of this year (see table 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 indicator of inflation in Brazil.

Notably, the accumulation of IPCA during the year up 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 total, ten services posted negative inflation rates over the cumulative period between January and August – Photo: Economy / G1

The service sector is the most important in the Brazilian economy. It has been hit hardest by the pandemic and is therefore the one experiencing the slowest and most uneven recovery. In July, out of the five main activities that make up the sector, only the services provided to families did not recover the losses caused by the health crisis, operating 23.2% below the level of February 2020. The ten services with Negative IPCA rates in 2021 are part of this activity.

The biggest contraction among services was the drop in air fares, with their average prices falling 33.81% during the year, followed by transport of orders, a drop of 14.33%.

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

In light of measures to restrict the movement of people to contain the Corona virus, the consumption of some of these services has declined. In the case of plane tickets, the sector is just starting to recover as the movement of people begins to recover more. He noted that with transfer by request, there has been a decrease in the flow of requesters.

Braz is hopeful that while these two services posted a contraction during the year, both had positive rates over the 12-month period – air fares increased by 30.15% and transport per order. increased 6.06%. This means that the average prices for both services are more expensive than in August of last year, but lower than in December.

Financial education: understanding what inflation is and how it affects your life

The FGV specialist pointed to the same impact on the demand of the pandemic as a possible explanation for the contraction of interstate bus services, voluntary vehicle insurance, higher education, youth education and adults, school transport and tourist packages.

There have even been cases where bus companies have broken down because people have stopped boarding the bus. In the insurance industry, no one needs to insure a car because they won’t be driving it. Ditto with package travel, where no one can travel. In the case of higher education, universities have granted reductions due to the switch from classroom to distance learning.

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 food, 14 are non-food products and 10 are services.

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

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

“These two articles [em deflação] He explained that there are various factors affecting this price drop.

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.

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

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

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 on the market was higher at the start of the year, which caused prices to fall. [-27,94% no acumulado do ano]. Already in the last 12 months she was made redundant [9,90%]Because the harvest was weaker last year.

The same goes for rice, which has accumulated a decrease of 10.11% per year, but recorded an increase of 32.68% in 12 months.

Inflation target and outlook

The central government’s target for inflation in 2021 is 3.75% and the tolerance range is 2.25% to 5.25%. To achieve this, the central bank increases or decreases the base interest rate of the economy (Selic).

Financial market estimates are already far from British Columbia’s targets: in the latest Focus survey, which compiles analysts’ expectations, inflation forecast for this year has already reached 8.35%.

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

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