Why Brazil is changing how it calculates inflation

Why Brazil is changing how it calculates inflation

The Brazilian Institute of Geography and Statistics has presented a new structure for its benchmark index for calculating inflation, the so-called National Amplified Consumer Price Index, or IPCA.

Looking from afar, the move could send shivers down the spine of some Latin American observers,

being reminiscent of the Néstor Kirchner years in Argentina. The late politician <a href="https://www.world-economics-journal.com/Papers/Argentina%E2%80%99s%20Inflation%20Data%20Problems_88e87d9c-fce6-4b6b-9d95-3535c006ab76.paper">tampered with how his country calculated inflation</a>, which made several international organizations stop using Argentinian official data for their lack of reliability.</p> <p>But the Brazilian case is very different. In fact, the country&#8217;s official statistics agency is making an effort to adapt to recent consumption trends. Expense categories such as CD and DVD prices will no longer feature in the calculation—neither will newspaper subscriptions or photo printing services. They will be replaced by items such as music streaming subscriptions and ride-hailing apps.</p> <p>The new structure of the IPCA consumer price index was based on the institute&#8217;s <a href="https://biblioteca.ibge.gov.br/visualizacao/livros/liv101670.pdf">latest survey</a> on household budgets. &#8220;Technological standards are changing faster than ever. We excluded items that no longer weigh into the overall inflation index—things we rarely find anymore. At the same time, we included products that are now part of Brazilians&#8217; day-to-day life,&#8221; said Price Index Manager Pedro Kislanov.</p> <div class="flourish-embed" data-src="visualisation/783909"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <h2>The new inflation index</h2> <p>Inflation rates will consider prices of 377 products and services—to be divided into the following groups:</p> <ul><li>Food and beverages;</li><li>Housing;</li><li>House appliances;</li><li>Clothing;</li><li>Transportation;</li><li>Healthcare and personal care;</li><li>Personal expenses;</li><li>Education;</li><li>Communication</li></ul> <p>Transportation will make up the largest share of the new inflation calculations—representing 20.8 percent of the index from 2020 on.</p> <div class="flourish-embed flourish-chart" data-src="visualisation/783670"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <p>The new index will also include, for the first time, mobile telephone plans, reflecting <a href="https://new.brazilian.report/money/2018/06/27/brazil-internet-smartphones/">Brazil&#8217;s growing spending on technology</a>. There are currently <a href="https://new.brazilian.report/newsletters/weekly-report/2019/04/27/brazilians-get-online/">420 million active electronic devices</a>—or two per person (including computers, laptops, smartphones, and tablets). And just five years ago, only 15 percent of Brazilian adults had a smartphone, a rate that has since jumped to 54 percent, according to a recent study published by the Pew Research Center.</p> <p>And, in the &#8220;personal expenses&#8221; category, the institute will now consider expenses with pet care—which has become something of a <a href="https://new.brazilian.report/tech/2019/10/04/tech-roundup-for-oct-4-2019-alexa-in-brazil/">trend in Brazil</a> in recent years.</p> <p>The IPCA index is not the only one to measure inflation. It is, however, the most complete of all indexes, measuring the fluctuation of prices throughout the month, impacting families with household revenue of between 1 and 40 times the minimum wage. It is the benchmark index used for inflation targets.

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