RIO DE JANEIRO, BRAZIL – The Consumer Price Index (CPI) slowed down in July for the 4th consecutive month posting its lowest record since October 2020, according to INDEC (National Institute of Statistics and Censuses).
July inflation stood at 3%, according to INDEC, the lowest record since October 2020. Consequently, prices in 2021 have thus far increased 29.1%, up 51.8% year-on-year, the highest variation since the start of the pandemic. In addition, it is the 4th consecutive month of deceleration and down 0.2% over June.
Core inflation, which does not take into account seasonal factors or regulated prices, decreased 0.4% over June and stood at 3.1% monthly. Seasonal prices increased up to 4.9% monthly, driven by the rise in vegetables and in tourist and recreational services due to the winter vacations. On the other hand, regulated prices rose 1.4% monthly against 3.2% in June.
In terms of division variation, the highest increase was registered by Catering and Hospitality with 4.8%, followed by Health at 3.8%, and then by Food and Non-alcoholic Beverages at 3.4%. The lowest variations were recorded in Transportation with 2.3%, Clothing and Footwear with 1.2% and Communication at 0.4%.
“The 3% shows that it is quite difficult to break 3% monthly rate because in July Hotels and Restaurants had a higher activity due to the winter vacations and prices increased 4.8%. August will see the increase in prepayments, representing 9%, and inertial inflation, such as in food, which does not drop below 3%. Inflation is expected to end the year close to 50% if we maintain this pace. It slowed down with respect to March but we are reaching a limit of 3%,” economist Jorge Neyro said.
On the other hand, economist Federico Glustein stated that “inflation has been showing a slight monthly deceleration since the peak in March this year, which reached 4.6%, and the 3% is a consequence of an anchor of real prices and the official exchange rate, which is increasing at a rate close to 1%, partially sustaining the growth of imported and some domestic products with components half a point below the general index.”
Food and Beverages increased 3.4% monthly, 0.2% more than in June with a mixed behavior. The lower increase in the prices of Meats and derivatives and Bread and cereals stood out, while a higher increase was recorded in Vegetables and Teas.
“Along with the different price control programs – which serve more as a reference than as an anchor – food is in line with the overall level. Moreover, the typical increases in tourism and leisure were not as high this year with a lower consumption of goods and services related to winter vacations, and mostly shifted to outdoor and low-cost or free activities,” Glustein explained.
The Central Bank’s latest Survey of Market Expectations (REM) had projected that retail inflation in July would stand at around 2.9% monthly, 0.2% less than what was ultimately measured by INDEC. Consulting firms surveyed in the REM estimated inflation for the whole of 2021 at 48%. This represents 11.9 percentage points more than the 36.1% recorded in 2020.
In terms of projections for what may occur in the coming months, Glustein said that “knowing that we are close to the elections, with the renegotiations of collective wage agreements around 45% per year, with an increase in transfers from the Central Bank to the Treasury and higher issuance, with more money circulating and a decrease in restrictions in stores and movement, it is likely that the August figures will change the downward trend and exceed 3% per month again, starting an upward trend and pushing inflation above 40% year-on-year in 2021.”
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