December IPCA: Inflation reaches 0.56%, closing 2023 with an increase of 4.62%, but the lowest since 2020; Understand the impact on the economy

Jan 11, 2024

5 min read

The final results of the IPCA ended the year with an accumulated increase of 4.62%, however, the lowest annual rate since 2020. These numbers were published this Thursday (11) by the Brazilian Institute of Geography and Statistics (IBGE).

Inflation is expected to rise in 2023, but on the other hand, it has been falling since 2020, according to IBGE data - Photo Reproduction/Roberto Gardinalli/Futura Press

The Broad National Consumer Price Index (IPCA) for December 2023 registered an increase of 0.56%, ending the year with an accumulated increase of 4.62%, however,the lowest annual level since 2020. These numbers, published in thisThursday (11) by the Brazilian Institute of Geography and Statistics (IBGE), reflect the dynamics of consumer prices and have significant implications for the Brazilian economy.

During this period, the Food and Beverage sector stood out, presenting the largest change (1.11%) and contributing with the greatest impact (0.23 percentage points) on the general index. This performance represents a notable acceleration in relation to the previous month, when the IPCA had registered an increase of 0.28% in November. In December 2022, the index rose to 0.62%.

As a result, accumulated inflation reached 4.62% throughout 2023. It is important to note that This result is aligned with the target established by the National Monetary Council (CMN) for the year, marking the first time since 2020 that the target was achieved. The figures for the month and the year exceeded financial market projections, which estimated increases of 0.49% for December and 4.55% for the year, indicating a more robust inflationary scenario than expected.

Performance in December

December's IPCA, which measures official inflation in the country, had a variation of 0.56%, above the rate recorded in November, which was 0.34%. This increase was influenced by several factors, such as the increase in food and beverage prices. According to IBGE data, this is the second consecutive increase in this group, which often exerts strong pressure on inflation. In December there was an increase of 1.11%, items in the subgroup Food at home registered an increase of 1.34%, contributing to this increase, directly impacting the family budget. The significant increases in potatoes (19.09%), carioca beans (13.79%), rice (5.81%) and fruits (3.37%) stand out.

On the other hand, Food away from home increased by 0.53% in the month, an acceleration compared to the previous month (0.32%). The institute highlights the increases in the prices of snacks (0.74%) and meals (0.48%), which were higher than those recorded in November (0.20% and 0.34%). The Housing group saw significant increases in residential electricity (0.54%) and water and sewage fees (0.85%).

Transport-related costs experienced an increase, rising from 0.27% in November to 0.48% in December. A significant increase of 8.87% in air ticket prices stood out, giving this sub-item the highest individual contribution of the month, equivalent to 0.08 percentage points. In contrast, fuels showed a deflation of 0.50%, with reductions in all main sub-items: diesel oil (-1.96%), ethanol (-1.24%), gasoline (-0.34%) and vehicle gas (-0.21%). Even so, gasoline recorded the largest increase among all sub-items over the previous year, and Transport remained the group with the greatest weight.

Result of the IPCA groups (December)

Food and beverages: 1.11%;
Housing: 0.34%;
Household items: 0.76%;
Clothing: 0.70%;
Transport: 0.48%;
Health and personal care: 0.35%;
Personal expenses: 0.48%;
Education: 0.24%;
Communication: 0.04%.

Annual result accumulated in 12 months

When considering the accumulated result for the year, the IPCA closed 2023 with an increase of 4.62%, exceeding the target established by the Central Bank, which aims to maintain inflation at around 3.25%, with a tolerance margin of up to 4. 75%, the experts predicted closed inflation of 5.31%. Although it has experienced the second largest nominal increase (7.14%), the Transport sector exerted the greatest influence on the global inflation index, contributing 1.46 percentage points.

Gasoline, a member of this group, stood out as the most significant sub-item among the 377 that make up the IPCA. Over the course of the year, it recorded an increase of 12.09%, generating an impact of 0.56 percentage points. Two other sub-items from the same group are also among the main drivers of price increases relevant to the IPCA. Registration and licenses increased by 21.22% in the year, contributing 0.53 percentage points to the IPCA. Air tickets occupy third place in the ranking, with an increase of 47.24% in the year and a contribution of 0.32 percentage points to the index.

In the Health and personal care segment, the largest contribution comes from the health plan, which registered an increase of 11.52%, contributing 0.43 percentage points to the index. In Housing, the main positive contribution came from residential electricity, which increased by 9.52% and contributed 0.37 percentage points. On the other hand, the performance of the Food and Beverages group stands out, despite the increase in recent months. The gain in the year was modest, reaching just 1.03%, influenced by the drop in food prices at home (-0.52% in the year), representing the lowest result since 2017 (-1.87%).

Result of the IPCA groups (12 months)

Food and beverages: 1.03%;
Housing: 5.06%;
Household items: 0.27%;
Clothing: 2.92%;
Transport: 7.14%;
Health and personal care: 6.58%;
Personal expenses: 5.42%;
Education: 8.24%;
Communication: 2.89%.

The target system establishes that the Central Bank (BC) is in charge of managing the basic interest rate, known as Selic, with the objective of achieving a specific inflation target each year. This goal is defined by the National Monetary Council (CMN), made up of the ministers of Finance, Planning and the BC president himself.

Impact on the Economy

Inflation within the target is important because it allows the Central Bank (BC) to continue the path of reducing the basic interest rate, the Selic.The impact of inflation on the economy is wide-ranging and affects several sectors. Among the main consequences, the following stand out:

1. Purchasing Power:High inflation implies a reduction in the population's purchasing power, as the prices of goods and services increase faster than salaries. This can directly impact consumption and family quality of life.

2. Interest Rate:To contain inflation, the Central Bank may choose to increase interest rates. This aims to discourage consumption and investment, but it can also make credit more expensive and make access to financing more difficult.

3. Investments:The uncertainty generated by high inflation can affect investments, as businesspeople and investors tend to be more cautious in environments of economic instability.

4. Cost of Debt:Increases in interest rates can impact the cost of public and private debt, increasing interest expenses and compromising fiscal balance.

5. Competitiveness:Inflation can also affect the competitiveness of companies, as production costs tend to rise. This can result in a reduction in profit margin and, in some cases, pressure to pass costs on to consumers.

Future perspectives

The final results of the IPCA raised the index above the projections of financial market analysts. The Food and Beverage segment the impacts of El Niño worsened in 2023, anticipating potential repercussions for the following year. At the end of the year, services experienced a slowdown compared to the previous year. With a closure rate of 6.22%, the result was lower than the 7.58% recorded in 2022. However, they remain at levels higher than the index average and are sensitive to volatile factors, such as air fares.

Given this scenario, the prospects for controlling inflation and economic recovery in 2024 are linked to government measures, monetary policies and the evolution of variables such as the international scenario, the behavior of the dollar and the trajectory of commodity prices. Close monitoring of these indicators is essential to understand how the Brazilian economy will respond to the challenges posed by inflation, seeking ways to achieve a sustainable balance and promoting the well-being of society.