Brazil’s rental inflation index posts highest 12-month rise in 25 years

RIO DE JANEIRO, BRAZIL – The IGP-M (General Market Price Index), known as rent inflation, increased 4.10% in May and accumulated a high of 37.04% in the 12-month period, reported on Friday, May 28, the Getulio Vargas Foundation (FGV).

The 4.10% monthly variation is the highest since November 2002. Considering the accumulated rate in one year, it is the highest since June 1995. In April, the IGP-M decreased due to a reduction in fuel prices.

The result was slightly above the monthly variation of 4% and the 36.91% accumulated in 12 months projected by analysts consulted by Bloomberg.

The IGP-M variation in May will have an impact on lease contracts maturing in June. Should landlords decide to apply the adjustment in full, a rent currently at R$2,000 (US$383) will rise to R$2,740.8 in July.

According to FGV, the commodity prices negotiated in dollars again pressured producer inflation, one of the 3 components of the IGP-M. To determine the index, FGV averages the variations in consumer, producer, and construction prices.

The Broad Producer Price Index (IPA) grew 5.23% in May. The main influence came from the increase cycle for iron ore. From a 1.23% drop in April, it rose 20.64% this month.

Also contributing to the index were sugar cane (18.65%) and corn (10.48%). André Braz, coordinator of the FGV price indexes, says that these products together accounted for 62.9% of the IPA variation in May.

These commodities are part of the raw materials group, one of the components of wholesale inflation. In April, they posted a 1.28% increase. This month, there was a 10.15% surge.

The IPA corresponds to 60% of the IGP-M composition. In 12 months, it has accumulated a 50.21% variation, the highest since June 1995, when it varied 62.79%.

In the IPC (Consumer Price Index), 5 of the 8 expenditure categories had a positive variation in May. The main impact came from housing expenses, due to the hike in electricity rates. From a 0.06% rise in April, the electricity bill jumped 4.38% in May, in terms of share in household budgets.

The other IGP-M component, the INCC (National Index for the Cost of Construction), posted an increase of 1.80%. All 3 index components, which are materials and equipment, services, and labor, showed a positive variation in May.

According to FGV, the accumulated increase among materials, equipment, and services totals 27.02%. In May, the main pressure on construction inflation came from iron and steel pipes and fittings, with a monthly variation of 9.40%, and PVC, up 5.37%.

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