Understand the Brazilian Inflation Index

Rebeca Duran

Staff Writer
The Brazil Business

Updated

30 January 2014

It’s not news that inflation was a problem during the last years of the Brazilian Dictatorship, in the decades of 1980 and 1990. But, it's not only during this period that Brazil confronted inflation. For many years, the country has been a victim of it and, for that reason, in 1939, the Brazilian inflation index started to be calculated.

Introduction to IPC

IPC, the abbreviation given to the Consumer Price Index of Brazil, is the measure of the inflation in the country. The index measures the change in prices of a fixed set of goods and services that compose the expenditure of normal Brazilian families, with income levels between 1 and 33 minimum monthly wages. The price research for IPC is done daily, covering the seven main capital cities of Brazil:

• São Paulo
• Rio de Janeiro
• Belo Horizonte
• Salvador
• Recife
• Porto Alegre
• and Brasília.

In the table below, it is possible to see the IPC variation during the last past years.

How the Index is Calculated?

In the years of 2008 and 2009, a Household Budget Survey (the Brazilian abbreviation is POF) was conducted by IBGE. The Brazilian consumer spending obtained from the survey now works as the IPC calculation basis. With the information collected by POF, weighting structures were created, showing the monetary value of goods and services components of the IPC sample in percentage terms.

The goods and services included in the sample were classified into eight groups or divisions, 25 subgroups, 85 items, and 338 sub-items, being the main eight classes of expenditure as:

• Food
• Housing
• Clothing
• Health and Personal Care
• Education
• Reading and Recreation
• Transportation
• Communication
• and Miscellaneous Expenditures.

But, it is not only the POF which is considered for IPC calculation, other two indexes were also taken into consideration:

• Consumer Price Index for the Elderly (CPI - 3i): measures the change in prices of goods and services, for families composed mostly by individuals over the age of 60.
• Consumer Price Index Class 1 (CPI - C1 ): works as a monthly indicator, measuring the change in prices of a basket of goods and services, for families with income between 1 and 2.5 minimum monthly wages.

There is More than One Type of Index

In Brazil, many indexes of this type were created during the 1950 decade, due to the creation of the minimum wage. All of them have the same main function: work as tools to measure the prices variation and its impact in the market and in the population cost-of-living. The difference between all of these indexes is mainly related to:

• the products which each one of them comprises
• the public evaluated by the index
• the period in which the measures are done
• and the organism or institute that realizes the research.

The most important indexes are calculated by IBGE, by the Getúlio Vargas Foundation (FGV), and by the Foundation Institute of Economic Research of the São Paulo University (Fipe-USP) during the 1º and 30º day of each month.

The inflation indexes are very important for people involved with contracts. Agreements like rents and services are usually adjusted according to IPC variations, which makes it fundamental for the people to know the indexes, and monitor their numbers throughout the year.

IPC-Fipe

It was first named as Cost-of-living Weighted Index of the working class of São Paulo, being only known by its current name in 1972: IPC-Fipe, the consumer price index of the Foundation Institute of Economic Research.

IPC-Fipe is calculated by Fipe covering a period of eight weeks of collection. In each period of four weeks, variations are obtained by dividing the average prices of the last four weeks (reference) by the average prices of the four weeks that preceded them (base).

IPCA and INPC

The National Wide Consumer Price Index, most known as IPCA, is measured by IBGE between the 1º ad 30º days of each month. The prices used for the calculation are the ones collected in commercial establishments, in service providers, in homes - in order to check rental prices - and in public service concession companies.

The index is the most famous in the country, it is related to the goals established by the Brazilian federal government. IPCA reflects the cost-of-living of families from São Paulo, Rio de Janeiro, Belo Horizonte, Porto Alegre, Curitiba, Salvador, Recife, Fortaleza, Belém, Federal District, and Goiânia with monthly incomes comprised between 1 to 40 minimum wages.

In order to cover a low income level not comprised by IPCA, the INPC is also calculated by IBGE. The National Consumer Price Index measures the cost-of-living of families with incomes of up to 6 minimum monthly wages.

IGP-M

The indexes measured by FGV are also important to the country. The main index calculated by this institution is the IGP-M, the General Index of Market Prices. It’s very useful in the correction of rents and public tariffs, such as the calculation of electricity bills. The index works for all layers of income, and is measured from the 21º day of the month to the 20º day of the following month. IGP-M calculates inflation of diverse prices, from the raw industrial and agricultural materials to final goods and services.

Variation of Inflation Indexes