The IGP-DI general price index for July in Brazil rose sharply to 1.52% above estimates, driven by higher agricultural commodity prices. This is expected to keep inflation indices elevated in the near-term, leading the authors to revise their year-end inflation projections upwards. The IPCA consumer price index for July is also forecast to rise to 5.2% year-over-year due to ongoing pressures from food and other items. While inflation remains a concern, the authors believe prospects are not as worrisome for the central bank compared to previous supply shocks.

1. Pine Economic Calendar: Short-term inflationary pressures
August 6, 2012
BRAZIL
IGP – DI - July
The IGP-DI general price index for July rose sharply from 0.69% in June to 1.52% and was
above the IGP-10 (0.96%) and IGP-M (1.34%) indices for the month. Our estimates based on
the recent performance of international commodity prices (highlighted by corn, soybeans
and, on a lesser scale, wheat) in a situation in which the Real is relatively stable, indicate
that the IGPs will remain at high levels during August, peaking in the IGP-10 index and then
slowing. As a result, we are revising our projections for the IGPs at the end of the year from
7.0% to 7.4%-7.9%.
The main negative (or inflationary) contributions to the July result remained the higher price
of agricultural products such as soybeans and by-products, corn, and some perishable items
like tomatoes. The variation in the IPA wholesale index remains high and is gaining force,
jumping from 0.99% to 5.31%. The IPC-DI is following the performance of the weekly IPCs
calculated by the FGV-RJ business school, with the variation remaining under control at
0.22%. Despite some positive contributions (in terms of lower inflation and/or deflation), the
consumer indices remain under pressure, with the ‘Transport’, ‘Clothing’ and ‘Food’ items
rising again. Finally, the INCC-M construction sector index continues to reflect to a lesser
extent the wage adjustments that occurred in the middle of the year, sliding from 0.73% to
0.67%.
IPCA - July
The July wholesale price index should expand by 0.39%, above the June result (0.18% by the
IPCA-15 and 0.08% by the IPCA). If our estimate is confirmed, the IPCA accumulated over 12
months will rise to 5.2% from the final rate of 4.9% for the previous month. This would be the
first increase since September 2010.
‘Industrial goods’ should show more contained deflation following the IPI tax
reduction period, also helped by the sales period in the ‘Clothing’ item.
The ‘Food Consumed at Home’ item should be higher than in June, with the ongoing
pressure from some perishable foods.
‘Controlled Prices’ should remain constrained and in line with the previous variation
(0.15%) in the absence of any large readjustments.
‘Services’ should show big increases spread widely. As with the July preview, there
will be a new round of wage increases for domestic workers.
To sum up, a breakdown of the IPCA should be negative, with the risk of the median
estimates (0.38% according to Bloomberg and 0.36% according to the Focus Report) being
surprisingly negative (in terms of higher inflation).
As we have stated on previous occasions, we expect a slight increase in the monthly figures
for the quarter that got underway in August of between 0.35% and 0.40%. The worsening in
producer prices is leading us to revise our estimate for the IPCA at the end of year from 4.8%
to 5.0%. However, we would stress that the outlook for inflation is not a matter of concern,
particularly for the Central Bank, as long as the prospects remain weak for the global
economy. At the same time, unlike the supply shock in 2010, the current cycle: (i) is more
concentrated on some commodities; and, (ii) is not being accompanied by big rises in live
cattle prices, factors that ease the prospect of a worsening in terms of inflation.
Marco Antonio Maciel Marco Antonio Caruso
Chief economist Economist
Banco Pine Banco Pine
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2. PINE
Time Country Indicator Date Consensus Previous
Estimate
Monday, 06/08/2012
Euro
05:30 Zone Investor Confidence Aug/12
08:00 Brazil IGP-DI Jul/12
10:30 Brazil Vehicles Sales and Production Jul/12
15:00 Brazil Weekly Trade Balance 05/Aug
15:15 US Senior Loan Officer Opinion Survey 3Q12
Tuesday, 07/08/2012
07:00 Germany Industrial Orders Jun/12
09:00 Brazil Regional PIM Jun/12
11:00 Brazil Level of Use of Installed Capacity Jun/12
16:00 US Consumer Credit Jun/12
Wednesday, 08/08/2012
03:00 Germany Current Transactions Jun/12
03:00 Germany Trade Balance Jun/12
06:30 Germany Bond Auction (Notes) EUR4.0B -
06:30 UK Inflation Report -
07:00 Germany Industrial Production Jun/12
08:00 Brazil IGP-M (1st Preview) Aug/12
st
08:00 Brazil IPC-S (1 Forecast) Aug/12
09:00 Brazil IPCA Jul/12
09:30 US Work Productivity 2Q12
09:30 US Work Unit Cost 2Q12
12:30 Brazil Weekly Currency Flow weekly
22:30 China Consumer Price Jul/12
22:30 China Producer Prices Jul/12
Thursday, 09/08/2012
02:30 China Industrial Production Jul/12
02:30 China Retail Sales Jul/12
08:15 US Leading Indicators May/12
09:00 Brazil Regular Survey of Agriculture Production Jul/12
09:30 US Trade Balance Jun/12
09:30 US Jobless Claims weekly 370,000 365,000
11:00 US Wholesale Inventories Jun/12
Friday, 10/08/2012
03:00 Germany Consumer Prices (Revised) Jul/12
09:00 Brazil Industrial Employment and Wages Jul/12
09:30 US Exports/Imports Prices Jul/12
World Agriculture Supply and Demand
10:30 US (Estimate) -
15:00 US Monthly Fiscal Result Jul/12
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