June 14th, 2024


1. IPCA increases 0.46% in May due to the floods in Rio Grande do Sul

In May, the Extended National Consumer Price Index (IPCA), which indicates the official inflation rate in Brazil, registered a 0.46% increase, according to the Brazilian Institute of Geography and Statistics (IBGE). The increase was mostly caused by the food and beverages sector, which saw a price increase of 0.62% in comparison to April. Products such as tubers, roots, and vegetables, especially potatoes, registered a significant price increase of 20.61%.

The floods in Rio Grande do Sul also contributed to the inflation increase. The prices in Porto Alegre represent 8.61% of the national inflation rate. In April, the inflation rate was 0.38%. The year-to-date inflation is 2.27%, and in the past 12 months, it reached 3.93%, the first annual increase since October 2023.

Despite these results, the inflation rate still remains within the Central Bank’s target range for 2024, which varies between 1.5% and 4.5%. 

G1: IPCA: preços sobem 0,46% em maio, com alta forte dos alimentos e já sentindo efeitos das chuvas no RS
Valor: IPCA sobe 0,46% em maio e fica acima do esperado

2. Federal Supreme Court mandates correction of FGTS to compensate for inflation

On Wednesday, the Federal Supreme Court ruled that the Length of Service Guarantee Fund (FGTS) must be adjusted to keep pace with inflation as measured by the Extended Consumer Price Index (IPCA). The decision aims to ensure that payments linked to fund accounts keep up with inflation.

Balances in existing FGTS accounts will be affected by the ruling in the coming days. The proposal for the decision, which was presented by the Office of the Attorney General (AGU) alongside labor unions, determines that future account adjustments must, at least, ensure the official inflation rates, following IPCA.

CNN Brasil: STF decide que correção do FGTS deve garantir a reposição da inflação
Folha de S.P: Entenda como fica a correção do FGTS com a decisão do STF

3. Retail sales grew 0.9% in April, driven by supermarkets and food

On Thursday, IBGE announced that retail sales grew 0.9% in April, the fourth consecutive month of increases, and registered an accumulated growth of 4.9% for the year and 2.7% over the past 12 months. The growth was mainly driven by the hypermarkets, supermarkets, food and beverage, and tobacco sectors, which grew 1.5%, and by the office equipment and communication sector, which grew by 14.2%.

The furniture and household appliances sector also registered a 2.4% growth in sales following a decline in March. Sales of fuels and lubricants registered the first increase of the year with 2.2% growth. The pharmaceutical, medical, orthopedic, and perfumery sector grew by 0.6%, accumulating a 13.8% gain for the year. In contrast, sales of books, newspapers, magazines, and stationery fell by 0.4%, and textiles, clothing, and footwear declined by 0.7%.

In the expanded retail sector, which includes vehicles and construction materials, there was a 1.0% decrease. Compared to April 2023, retail sales grew by 2.2%, with increases in six of the eight sectors analyzed.

Exame: Puxado por supermercados e alimentos, vendas no varejo sobem 0,9% em abril, diz IBGE
O Globo: Comércio tem quarta alta consecutiva e acumula crescimento de 4,9% de janeiro a abril

4. Market faces uncertainties regarding the Selic rate due to risk perception

The deterioration in the perception of risk in Brazil has led the market to predict an increase in the Selic rate, which could exceed 11% by the end of the year. The rise in future rates reflects the demand for higher risk premiums and investors’ discomfort with the conduct of fiscal policy, pricing a Selic rate between 11.25% and 11.5% in December and around 12% by the end of 2025. Currently, the rate is at 10.50% per year.

The perception of risk was intensified by recent setbacks faced by Finance Minister Fernando Haddad to increase tax revenue, increasing fiscal risk. Analysts indicate that the probability of new cuts in the Selic rate has decreased, with some institutions – such as Itaú and XP – not predicting cuts even in 2025. Amid expectations of rising inflation, resilient economic activity and greater domestic and external uncertainty, economists understand that there is no longer room for additional interest rate cuts.

Folha de S.P: Com aumento do risco fiscal, mercado prevê manutenção da Selic em 10,50%
Valor: Piora da percepção de risco leva mercado a precificar Selic acima de 11% até o fim do ano

5. Brazil’s grain harvest expected to fall 7% due to climate change

The National Supply Company (CONAB) projects that Brazil’s 2024 grain harvest will be 297.54 million tons, a 7% decrease compared to the previous year. This reduction, which means 22.27 million tons less, is attributed to climate impacts, including the El Niño phenomenon (in 2023) and floods in Rio Grande do Sul, which affected crops like rice and soybeans. CONAB made the assessment in the last week of May after the peak of the floods that affected most of the municipalities in Rio Grande do Sul.

Soybean production, estimated at 147.3 million tons, is expected to decrease by 4.7%. However, corn harvests are expected to increase by 2.5 million tons, totaling 114.14 million tons.

CONAB adjusted its estimate for rice production, reducing it to 10.4 million tons, but still expects a 4.3% increase in national production. Despite the climate challenges, the results are considered satisfactory, demonstrating the technical capacity of Brazilian producers to be prepared for different cultivation situations.

O Globo: Estimada em 297,5 milhões de toneladas, safra de grãos deve cair 7% este ano
UOL: 9ª pesquisa da Conab indica queda na safra de grãos, para 297,54 milhões de toneladas