With frost in Brazil, inflation estimates exceed 7%

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As frosts last week and those expected until tomorrow will pressure the food price and add to an already complex scenario for the inflation, which is making economists revise the projections for the Extended National Consumer Price Index (HICP) of 2021. Estimates begin to exceed 7%, almost two percentage points above the ceiling for inflation pursued by the Central Bank. If this happens, the country will register this year the highest inflation since 2015, when it was 10.67%.

Santander, for example, currently foresees a HICP of 6.7%, but, given the expected rise in food and the water crisis – which should pressure prices in general -, the bank’s economists are already talking about higher levels. “With all the current risks, the face of the IPCA is more to 7.3%”, says economist Daniel Karp.

The consultancy Tendências currently projects 6.1%, but, according to economist Marcio Milan, this number will be revised in the coming days. “Clearly, the bias is bullish,” he says.

XP, which still projects 6.7%, released a report yesterday in which it says it sees the possibility that the price increase will exceed 7%. According to economist Tatiana Nogueira, author of the document, the company should wait until the beginning of next week to analyze the impact of the frosts that should occur until tomorrow and then officially change its estimate to the inflation.

Current projections contrast with what was expected at the beginning of the year, when prices were expected to increase by around 3.5% in 2021. Until now, the main driver of inflation was gasoline, which, according to Trends, should rise 24.5% with the increase in global demand due to the economic recovery. In recent months, the water crisis it also became a matter of concern. In view of the lack of water and the consequent readjustments in the electricity bill, the increase in energy has already added 0.68 percentage points to the IPCA and may add another 0.13 point if a new readjustment is approved – as expected -, according to Santander.

Now, it’s time for the frost to give the inflation. For the time being, the production of coffee, vegetables and fruits had the biggest losses. With the reduction in supply, prices are expected to rise rapidly. XP calculates that this effect could mean another 0.1 percentage point to the IPCA. “Despite being a smaller increase, this risk is more likely. Farmers are already reporting loss in production. This will probably hit prices collected next week,” says Tatiana, from XP. The other risk on the economist’s radar is a greater rise in the prices of services as a result of the reopening of the economy. According to her, this movement can add another 0.2 percentage point to inflation.