The February inflation report for Brazil shows the Índice Nacional de Preços ao Consumidor Amplo 15 (IPCA-15) registering a sharp increase of 1.23%, nearly doubling from January's low of 0.11%. This significant uptick, highlighted by the Instituto Brasileiro de Geografia e Estatística (IBGE), marks the highest rate for February since 2016 and signals new economic challenges as the inflation rate reaches 4.96% year-over-year.
This 1.23% increase is attributed to various sectors, with Housing leading at 4.34%, contributing 0.63 percentage points to the monthly index. The surge was primarily driven by household energy costs, which soared by 16.33% following a remarkable decline of 15.46% the previous month due to the expiration of the Itaipu power subsidy. According to IBGE data, the February spike aligns with seasonal tuition hikes observed at the start of the academic year, particularly impacting education costs, which rose by 4.78%.
Other notable contributors to the inflation rise include transport prices, which increased by 0.44%, with gasoline prices climbing by 1.71%. Contrarily, airfares saw significant drops of 20.42%, which was more substantial than market predictions of about 15%. The food and beverage sector also recorded slower growth, advancing just 0.61%, compared to January's 1.06%. Key items like carrots and ground coffee recorded notable price increases, whereas potatoes and fruit prices registered declines.
While the IPCA-15 result was lower than anticipated by many analysts—who had predicted around 1.36%—the pressure from rising energy and educational costs still indicates persistent inflationary challenges for Brazilian consumers. Igor Cadilhac, economist at PicPay, emphasized this viewpoint, indicating the Central Bank may need to raise the Selic rate to 15%, maintaining it through the end of the year to combat rising inflation levels. This elevation is deemed necessary as inflation continues to breach the targeted limits, complicatively surpassing the established ceiling for 2025.
The report reflects broader economic dynamics, including the impact of external factors like climatic variations and currency fluctuations, which have been affecting food prices adversely. The situation continues to create significant political and financial concerns for the Lula administration, with food inflation contributing to dissatisfaction among voters.
The IPCA-15 functions as a precursor to the official IPCA measuring inflation, offering early insight for economists. The detailed collection methodology differs slightly, observing prices from the latter half of the previous month to the start of the reporting month, contrasting with IPCA's compilation within the month itself. This means the complete IPCA figure for February will not be released until March 12.
Currently, market forecasts are not optimistic, with projections estimating the official inflation rate could rise to 5.65% by the end of 2025, straying beyond the upper boundary of the inflation target for the year, set at 4.5%. The changes to the inflation tracking regime are significant as the Central Bank moves toward continuous monitoring, simplifying adherence to targets based on six-month tracking periods.