Understand what the Broad Consumer Price Index (IPCA) is and how it affects the market and daily life.
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What is it?
The Broad Consumer Price Index (IPCA) is Brazil's main inflation indicator, calculated and published by the Brazilian Institute of Geography and Statistics (IBGE). It measures the variation in prices of a basket of goods and services consumed by families earning between 1 and 40 minimum wages, encompassing everything from food products to services such as transportation and housing.
Impact of the IPCA on the Brazilian Financial Market:
The IPCA plays a fundamental role in the economy and directly influences the financial market, especially in three main areas: monetary policy, investments, and purchasing power.
Monetary Policy: The Central Bank of Brazil uses the IPCA as a reference to set the basic interest rate, the Selic. When the IPCA indicates rising inflation, the Central Bank may raise the Selic to contain demand and curb price increases. Conversely, if inflation is low, interest rates may be lowered to stimulate the economy. Thus, the IPCA is crucial for controlling economic stability.
- Investments: The IPCA is a key parameter for various financial products, such as inflation-indexed government bonds (Tesouro IPCA+), whose yields are adjusted based on the index's variation. Investors also use the IPCA to adjust their strategies since inflation can erode the real return of certain investments, such as fixed income, or affect the performance of publicly traded companies, especially those that heavily rely on imported inputs or commodities.
- Purchasing Power: For the average consumer, the IPCA reflects the direct impact on their finances. When the index rises, it means prices have increased, reducing the purchasing power of families. In cases of high inflation, the population tends to spend more on basic items, adversely affecting demand for other products and services, which can slow down economic growth.
How is the IPCA Calculated?
The calculation of the IPCA involves collecting prices from various metropolitan regions and cities across the country. The basket of goods and services monitored is based on surveys of Brazilian household consumption habits, and the index is published monthly, reflecting price fluctuations of these items.
Among the products and services considered in the IPCA are:
- Food and beverages
- Housing
- Household items
- Clothing
- Health and personal care
- Transportation
- Education
- Communication
The variation in the IPCA indicates inflation or deflation, meaning whether prices are increasing or decreasing compared to the previous month.
