Industrial prices retreated 2.72% in June over May, the fifth consecutive month to drop. The cumulative index in the year hit -6.46%, the lowest figure ever registered for June since the beginning of the time series in 2014.  The cumulative indicator in 12 months stayed at -12.37%, the lowest rate in the time series as well.

Released today (27) by the IBGE, the Producer Price Index (IPP) data show that 19 out of 24 industrial activities investigated by the survey registered negative changes in June in relation to May.

“The Brazilian industry lives with deflation at the factory gate for nearly one year. This is the first time that the cumulative indicator in 12 months hits a two-digit negative change. It is important to stress the effect of the continuous drop in the prices of key commodities, which has cheapened the production costs along the national productive chains, made imported basic products more competitive and reduced the unit revenue of sales of Brazilian exporters. All this effect is maximized by the currency valuation in the last months,” comments Felipe Câmara, an IPP analyst.

The four activities with the highest changes were: mining and quarrying industries (-10.52%); petroleum refining and biofuels (-6.32%);  other chemicals (-5.01%) and pulp and paper (-4.40%). Food was the most relevant sector of industry in the composition of the aggregate result, in the comparison between June and May. This activity was responsible for -0.83 percentage points (p.p) of influence on the change of -2.72% in general industry.

“The scenario is reinforced by the plentiful supply of raw material for the manufacture of food, which was key for that activity to be the major responsible for the retreat in the IPP in June over May. Mining and quarrying industries, refining and chemical were also highlights in term of influence; together, these four activities represent nearly 50% in the calculation of the IPP and all of them were affected by one or more factors previously mentioned,” completes the analyst of the survey.

Food exert major impact for dropping the index

The prices of food changed -3.35% in June, the second consecutive negative change and the fourth one in the year, exerting the biggest impact on the IPP. The most intense negative rate in the time series was that of August 2022 (-3.50%). The cumulative index in the year changed -5.04%, a very different scenario from one year ago, when the change reached 7.89%. In the cumulative indicator in 12 months, the rate of -7.56% is the second negative most intense in the time series, approaching that of September 2017 (-7.57%).

“In the manufacture of food, a combination of significant harvests, higher volume of slaughtering and improved distribution have joined to contribute to the deflation in the sector. Products with high weight, like soybean derivatives, meat and poultry and VHP sugar, recorded lower prices due to those events,” analyzes Câmara.

The prices of the mining and quarrying industries dropped for the second month in a row, registering -10.52% in June. As a result, the cumulative index in the year moved from 4.82% in May to -6.20%. The cumulative indicator in 12 months hit -31.95%.

“Influencing the result of the mining and quarrying industries, the price of crude oil closed the year at a lower level, following the price in the foreign market, and the Brazilian iron ore was cheaper for one more month, after a first quarter of seasonal increase of the Chinese demand,” clarifies Câmara.

The prices in the sector of petroleum refining declined for the seventh month in a row, hitting -6.32%. As a result, the cumulative index in the year hit -23.30%, a very different situation than that of June 2022, when the cumulative index was 31.46%. In 12 months, the change is of -35.21%.

“Petroleum derivatives remain dropping, passing on to the producer price increasingly lower costs for the acquisition of the raw material. Alcohol also stood out, with prices pressed as it replaces petroleum derivatives, but also by the recent higher supply of sugarcane,” explains the IPP analyst.

The prices of chemicals at the factory gate retreated for one more month, between May and June (-5.01%). As a result, this sector completes a series of 12 consecutive months of lows in this type of comparison, which also caused negative rates in the cumulative index in the year (-16.98%) and in the comparison with the same month a year ago (-32.38%).

“The prices of elastomers and resins retreated for more than a month against a moderate demand for these items and against the resumption of the adherence of naphtha to the price of the oil barrel - a response to the regional reorganization in the global supply of this input. On the other hand, fertilizers remained dropping in line with the slowdown global and domestic demand for these items. The import of macronutrients remains cheap and the imported final product is more competitive. In addition, with the price of grains still low, national farmers have postponed the replacement of their stocks, a movement that also helps to understand, to some extent, the retreat noticed in the price of pesticides,” says the IBGE researcher.

Among the major economic categories, the changes of -1.09% in capital goods (BK), -3.41% in intermediate goods (BI), and -2.02% in consumer goods (BC), being the change reported in durable consumer goods (BCD) of 0.14% and that in semi and non-durable consumer goods (BCND) of -2.45% stood out. The major influence among the major economic categories was exerted by intermediate goods, whose weight in the overall index was 55.09%, and it accounted for -1.89 p.p. of the -2.72% change.

Consumer goods (influence of -0.74 p.p.) and capital goods (-0.08 p.p.) completed the list. In the case of consumer goods, the influence observed in June was split into 0.01 p.p., due the change in prices of durable consumer goods and -0.75 p.p., associated with the change in prices of semi and non-durable consumer goods.

“In the long term, we see that the deflation process of the IPP, which began with the price crash of intermediate goods, is now widespread and has been passed on along the chains. Having recorded -4.99% in June, consumer goods at the factory gate already show the third consecutive month of negative rates in 12 months, a movement that is followed by a deceleration in the inflation in the price indexes for final consumers,” completes the analyst.

More about the survey

The IPP aims at measuring the average change of sale prices received by the domestic producers of goods and services, as well as their evolution over time, signaling the short-term inflationary trends in Brazil.  It is a key indicator for the macroeconomic follow up and, consequently, a valuable analytical instrument for decision makers, either public or private.

The survey investigates, in slightly more than 2,100 enterprises, the prices received by producers, free from tax, tariffs and freight, defined according the most usual commercial practices.  Nearly 6 thousand prices are collected monthly. The complete tables with the results are available at Sidra.

The next release of the IPP, related to July, will be on August 30.