October inflation stands at 0.09%, lowest for the month since 1998
The reduction in electricity bills pulled Brazil’s official inflation down and caused the country’s price index IPCA to close out October at 0.09 percent – the lowest for the month since 1998. In September, the index had registered 0.48 percent. In October 2024, the variation had been 0.56 percent.
This result brings the accumulated IPCA for the last 12 months to 4.68 percent, down from 5.17 percent for the 12 months ending in September. This is the first time in eight months the rate has fallen below five percent. However, it is still above the government’s three-percent target, with a tolerance of 1.5 percentage points above or below, i.e. a maximum of 4.5 percent.
The data were released Tuesday (Nov. 11) by the statistics bureau IBGE.
Household electricity
Household electricity fell 2.39 percent in the month, representing an impact of -0.1 percentage point on the price index.
The explanation lies in the migration from red-tariff level 2 to level 1. At level 2, there is an additional charge of BRL 7.87 on the electricity bill for every 100 kilowatts consumed. At level 1, in effect in October, the extra charge is BRL 4.46.
The extra charge is determined by the National Electric Energy Agency (ANEEL) to cover the costs of thermoelectric plants during periods of low hydroelectric reservoir levels. The additional charge is necessary because the energy generated by thermoelectric plants is more expensive than hydroelectric energy.
According to research manager Fernando Gonçalves, if there were no relief on electricity bills, the October IPCA would stand at 0.20 percent.
Above target
The 12-month cumulative IPCA is the 13th consecutive month outside the Central Bank’s monetary policy tolerance limit. This is one of the main reasons why the bank is maintaining the benchmark interest rate – the Selic – at 15 percent per annum, the highest since July 2006 (15.25%).
High interest makes credit more expensive and discourage investment and consumption, thus acting as a brake on the economy, reducing demand for products and services and cooling inflation as a result.
The IPCA calculates the cost of living for families with incomes between one and 40 minimum wages. In total, prices are collected for 377 sub-items (products and services) across ten metropolitan areas in Brazil.
