IGP-M rises 2.23% in July 2020

As a result, the index has gone up 6.71% this year and 9.27% in the last 12 months. In July 2019, the index rose 0.40% and its 12-month rate was 6.39%.
Economics
31 July 2020
IGP-M rises 2.23% in July 2020

The General Price Index – Market (IGP-M) rose 2.23% in July 2020, up from a 1.56% increase in June. As a result, the index has gone up 6.71% this year and 9.27% in the last 12 months. In July 2019, the index rose 0.40% and its 12-month rate was 6.39%.

“The three indexes that make up IGP-M all accelerated in July. The Broad Producer Price Index (IPA), the index with the biggest weighting, experienced a strong increase in the prices of important commodities, such as iron ore (5.83% to 8.98%), soybeans (1.43% to 8.89%) and beef (3.26% to 8.94%). The Consumer Price Index (CPI) was directly influenced by the 4.45% rise in gasoline prices. Finally, the Civil Construction Index (INCC) increased due to collective work agreements signed in Rio de Janeiro and Sao Paulo, which resulted in a 0.92% rise in labor costs,” says price index coordinator André Braz.

Broad Producer Price Index (IPA)

The Broad Producer Price Index (IPA) went up 3.00% in July, compared to 2.25% in June. Breaking down the results by processing stage, the Finished Goods group’s rate increased 0.45% in July, down from 2.45% the previous month. The main contribution to this result came from the Fresh Food subgroup, whose rate went from 1.15% to -14.63% over the same period. The figure for Finished Goods (ex), which excludes the Fresh Foods and Fuels for Consumption subgroups, varied 1.28% in July, compared to 1.54% the previous month.

The Intermediate Goods group’s rate rose from 1.70% in June to 2.06% in July. The main driver was the Fuels and Lubricants for Production subgroup, whose percentage went from 6.12% to 12.78%. The Intermediate Goods (ex) index, obtained after excluding the Fuels and Lubricants for Production subgroup, went up 0.81% in July, compared to 1.21% in June.

The Raw Materials processing stage rose 6.35% in July, compared to 2.57% in June. The following items contributed to the increase in the group’s rate: Soybeans (1.43% to 8.89%), Iron Ore (5.83% to 8.98%) and Beef (3.26% to 8.94%). Conversely, there were notable decreases for Sugar Cane (1.39% to -0.62%), Unprocessed Rice (10.44% to 0.99%) and Unprocessed Cotton (2.57% to -0.24%).

Consumer Price Index (CPI)

The Consumer Price Index (CPI) rose 0.49% in July, up from 0.04% in June. Five of the index’s eight component spending classes registered growth in their rates of change. The main contribution came from the Transport group (0.21% to 1.45%). Within this expense category, it is worth mentioning the behavior of the Gasoline item, whose rate went from 0.40% in June to 4.45% in July.

The Education, Reading and Recreation (-1.33% to 0.12%), Housing (-0.11% to 0.49%), Health and Personal Care (0.19% to 0.32%) and Communication (0.41% to 0.61%) groups also saw increases in their variation rates. Within these expense categories, the following items are worth mentioning: Airfares (-10.08% to 13.55%), Residential Electricity Charges (-1.06% to 1.09%), Medicines in General (0.41% to 1.09%) and Monthly Pay TV Subscriptions (0.53% to 1.46%).

In contrast, the Food (0.45% to 0.05%), Apparel (-0.11% to -0.24%) and Miscellaneous Expenses (0.21% to 0.20%) groups recorded decreases in their variation rates. Among these expense categories, the highlights were Vegetables (0.95% to -12.27%), Clothing (-0.06% to -0.38%) and Pet Food (1.08% to -0.83%).

Civil Construction Index (INCC)

The Civil Construction Index (INCC) rose 0.84% in July, compared to 0.32% the previous month. INCC’s three component groups recorded the following variations between June and July: Materials and Equipment (0.81% to 0.92%), Services (0.19% to 0.09%) and Labor (0.00% to 0.92%).

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About IGP-M:

The General Price Index (IGP) was created in the late 1940s to provide a comprehensive measure of price movements, encompassing not only different activities but also different stages of the production process. Thus, IGP is a monthly indicator of the level of economic activity in Brazil, covering its main sectors.

IGP has three versions with different price collection periods: IGP-10 (based on prices collected from the 11th day of the previous month to the 10th day of the current month), IGP-DI (from the first to the last day of the month), and the most popular one, the General Price Index – Market, or simply IGP-M (which collects information on price variations from the 21st day of the previous month to the 20th day of the present month).

IGP-M is calculated and divulged every month by Fundação Getulio Vargas’ Brazilian Institute of Economics (FGV IBRE). It is used extensively in parametric formulas for adjusting electricity and phone charges, in rental contracts and in service contracts.

How IGP-M is calculated:

The calculation of IGP-M, like the two other indicators (IGP-10 and IGP-DI), takes into account variations in the prices of goods and services, as well as those of raw materials used in agriculture, manufacturing and construction. IGP-M is the weighted arithmetic mean of producer (IPA), consumer (CPI) and construction (INCC) inflation.

  • - Broad Producer Price Index (IPA);
  • - Consumer Price Index (CPI);
  • - Civil Construction Index (INCC).
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The weighting of each component index corresponds to the respective share of gross domestic product, based on the national accounts, resulting in the following breakdown:

  • - 60% for IPA;
  • - 30% for CPI;
  • - 10% for INCC.
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In this context, IPA is an indicator that monitors variations in prices perceived by producers, while CPI tracks the behavior of prices that directly affect end consumers. Finally, INCC presents construction costs, taking into account variations in the prices of construction materials and the cost of specialized labor.

How IGP-M is used:

IGP-M is one of the component indexes of parametric formulas used by phone and power companies, contributing toward calculations of price adjustments in these sectors. The General Price Index – Market is also used as a contractual benchmark for companies providing services in various sectors, such as education and health insurance. IGP-M first became popular when it became widely used as a reference for the real estate sector, to adjust rents.

Due to its consistent disclosure since the 1940s, IGP-M is also mentioned in many public and private sector contracts in a wide variety of sectors. Some of its components, such as the Broad Producer Price Index (IPA), also serve as a benchmark for price adjustments.