A Temporary Respite in Inflation: The Impact of the Itaipu Bonus and Persistent Focus on Services.
The recent release of the National Broad Consumer Price Index (IPCA) for August revealed a scenario of relief on the inflationary front, registering deflation of 0.32%. However, financial market analysts point out that this improvement, while welcome, is significantly influenced by circumstantial factors, particularly the credit granted by Itaipu Binacional. This bonus, aimed at reducing electricity bills, was the main driver behind the decline, impacting the index by -0.33 percentage points.
August’s performance surpassed market expectations, which had anticipated a drop of only 0.28%. Over a twelve-month period, the inflation rate consolidated a slowdown, moving from 4.44% to 4.22%, a level that remains within the tolerance range set by the official 4.5% target. This positive movement reignites the debate about the possibility of further cuts in the basic interest rate. Nevertheless, the detailed breakdown of the index raises a red flag, especially regarding the performance of the services sector.
Unpacking the Factors Behind Deflation
The Itaipu credit, a non-recurring component, was crucial for August’s results. Pablo Spyer, a counselor at Ancord (National Association of Broker-Dealers of Securities and Investment Funds), corroborates this view, stating that the hydroelectric plant’s bonus was largely responsible for the observed reduction.
It’s a very good snapshot of August, but the market will want to know if this relief will continue.
Spyer remarked, indicating the need for vigilance regarding the sustainability of this trend.
The analysis of inflation core measures, which exclude more volatile items, also revealed nuances. Felipe Rodrigo de Oliveira, chief economist at MAG Investimentos, highlighted a slowdown in these indicators.
Inflation core measures tracked by the market decreased from 0.26% in July to 0.23% in August. Services, in particular, showed a significant deceleration, falling from 0.54% to 0.03%, driven by reduced airfare prices.
Services: Inflation’s Sticking Point
Despite advances in some segments, underlying services inflation, which considers less volatile items, showed a more modest slowdown, moving from 0.42% in July to 0.40% in August, according to Oliveira. This resilience raises concerns.
Gabriel Pestana, an economist at Genial Investimentos, complements the scenario by pointing out that, although inflation core measures remained below the Central Bank‘s projections, the services sector continues to exert pressure on the overall index, with annualized quarterly metrics fluctuating around 5%.
On the other hand, Mariana Rodrigues, an economist at SulAmérica Investimentos, presented a slightly more optimistic perspective regarding underlying services, considering their more benign dynamics in August as a factor for qualitative improvement in the IPCA‘s result.
Interest Rates and Future Projections
The 12-month inflation within the target range could intensify expectations for interest rate cuts. Roberto Luis Troster, coordinator at Cefeb/Fipe, suggests that this scenario could lead to a reduction in shorter-term forward interest rates and pressure the Copom (Monetary Policy Committee) to proceed with the monetary easing policy.
However, he reiterates that the influence of the Itaipu bonus is temporary and that services still demand attention.
In terms of projections, Genial Investimentos maintains its inflation forecast of 5% for 2026 and expects a 0.25 percentage point cut in the Selic at the next Copom meeting, projecting the base rate at 13.75% by the end of the year.
Risk factors such as oil prices exceeding $100 and climatic events like El Niño continue to be monitored. The reduction of PIS/Cofins on gasoline and ethanol, with an estimated downward impact of 0.20 p.p. on the IPCA by October, is also an element to consider.
