Text for Discussion:
Definitions and Data:
Some Indexes of the Brazilian Inflation
The objective of the present note is to introduce the main Brazilian indexes, describing their main characteristics such as, for example, methodology, calculation, geographical inclusion and values. Historically the main institutions that calculate price indexes for the Brazilian economy are Fundação Getúlio Vargas (FGV), Instituto Brasileiro de Geografia e Estatística (IBGE), Fundação Instituto de Pesquisas Econômicas (FIPE) and Departamento Intersindical de Estatística e Estudos Sócio-Econômicos (DIEESE). Therefore, the organization of the present note is based on price indexes of these four institutions.
The FGV started to calculate this index in 1947 when the methodology for calculating the General Price Index (Índice Geral de Preços – IGP, in Portuguese) was created and that, except for some corrections and updating, remains unchanged. Initially the estimates referred to public bonds and shares, wholesale prices, food prices and cost of living.
These series were retroactively calculated down to 1944, the year when the FGV was created, and aimed at deflating the monthly index of trade evolution. When the monetary correction was introduced in the country in 1964 this index became widely used to correct contracts, especially those of public works.
In order to get the IGP one weights the Whole Sale Price Index (Índice de Preços por Atacado – IPA, in Portuguese), the Consumers Price Index (Índice de Preços ao Consumidor – IPC, in Portuguese) and the National Construction Cost Index (Índice Nacional de Custo da Construção – INCC, in Portuguese) with weights equal to 6, 3 and 1, respectively.
Three derivations came from the IGP along time. The first one in 1969, when the IGP was split into two versions: Internal Availability (Disponibilidade Interna – DI, in Portuguese) and Global Offer (Oferta Global – OG, in Portuguese). The main objective was to isolate the effects of coffee prices oscillations. The DI version played this role by assigning a lower weight to exports products. Presently, with the diversification of exports, the dispersion between the two versions is irrelevant.
The second change was the introduction of the Market General Price Index (Índice Geral de Preços do Mercado - IGP-M, in Portuguese) in 1989, a version of the IGP for the financial market. Whereas the IGP-DI collects prices between the 1st and 30th day of the reference month, in the IGP-M the prices refer to the 21st of the previous month and the 20th of the month of reference. Therefore the IGP-M can be published before the end of the month what is something essential for its use as a financial reference. Before the final result two partial results are published corresponding to the first and the second ten-day period.
In 1993 it was started the dissemination of the IGP-10, the IGP version colleted between the 11th of the previous month and the 10th of the reference month.
The Wholesale Price Index (IPA) has been calculated by the FGV since 1944. It measures the inter-business trade prices and includes several steps of the productive process previous to retail selling.
The prices of agricultural and industrial raw material, intermediate and final use products are monitored. In the General Price Index (IGP-DI) the IPA is the largest fraction, namely 60%.
The longest IPA series is presented in two versions: Internal Availability (IPA-DI) and Global Offer (IPA-OG). The series that constitute the IPA-DI is the consumer or production goods. In the IPA-OG the series is that of the productive sectors.
Furthermore the FGV also calculates the IPA-Market (IPA-M) that participates in the General Price Index for the Market (IGP-M).
The Construction Costs Indexes are sub-divided in residential construction and engineering public works or infrastructure indexes. The main indexes relative to residential construction are: National Construction Cost Index (INCC), Construction Cost Index of Rio de Janeiro (ICC-RJ) and Buildings Index.
It is one of the three items that constitute the General Price Index (IGP), representing 10% of the index. Its publication started in February 1985 as a result of the unification of the older Construction Cost – Rio de Janeiro Index (ICC-RJ) with the Building Index series that is geographically more inclusive. Like the IGP, there is also the INCC version for the market (INCC-M).
• Construction Cost Index - Rio de Janeiro (ICC-RJ)
It is the oldest index referring to residential construction calculated by the FGV. Published since 1950, with estimates down to 1944, it was one of the thee fractions of the IGP until January 1985. It is still published separately but it is also a fraction of the INCC.
• Building Index
It was started in 1974 including 8 capital cities, allowing a larger territorial inclusion of the evolution of the construction costs. Although it is coincident with the INCC, it is also published for those who use it due to contractual reasons. It is also known as the 35 column of the Revista Conjuntura Econômica.
The construction costs include also the engineering public or infrastructure works. The main indexes calculated by the FGV are: Road and Hydroelectric Works. These indexes are calculated by the FGV through agreements with public organs.
The Consumer’s Price Index calculated by the FGV records the price variation of goods and services consumed by families with a monthly income of up to 33 minimum wages.
These items are classified in groups: Food, Housing, Clothing, Transport, Health, Education and Various Expenses. Each group allows for subdivisions up to the individual item. The weight given to each group or subdivision depends on how much families spend on each good or service. These information are obtained through the Monitoring of Familial Budgets (POF) periodically carried out by the FGV.
The Consumer’s Price Index of Rio de Janeiro (IPC-RJ) is the oldest consumer’s price calculated by the FGV with estimates from 1944 on. Until 1990 it was one of the main components of the General Prices Index (IGP-DI) when it was substituted by the Consumer’s Price Index – Brazil (IPC-BR).
The Consumer’s Price Index – Brazil (IPC-BR) was created in 1990 and it was extended to the city of São Paulo, until that year restricted to Rio de Janeiro. Presently this index is called Consumer’s Price index-Brazil, Internal Availability (IPC-BR-DI).
The Consumer’s Price Index –Rio de Janeiro, Internal Availability (IPC-RJ-DI) and the Consumer’s Price I-, São Paulo, Internal Availability (IPC-SP -DI), that compose the IPC-BR-DI, are published separately. According to its catalogue, the FGV also calculates a version of the IPCs for the financial market (IPC-M).
Using data collected for the IPC-BR, other indexes are also calculated using new aggregations. The marketable and non-marketable goods index groups the items collected by the IPC-BR concerning external trade and those exclusive of the internal trade, basically services.
The core inflation is another form of aggregating the IPC-BR items, aiming at neutralizing through statistical methods transient factors that would lead to significant increases or exaggerated decreases of certain products or services.
The FGV calculates effective exchange rates that reflect the purchase power of the national currency relative to different baskets of foreign currencies.
The methodology used in the calculation of the effective rate is that of aggregation using the geometrical average of the bilateral exchange rates of countries and their main commercial partners corrected by the difference between the internal and external inflation.
For Brazil the deflator used is the Wholesale Price Index – Industrial Products (IPA-PI) calculated by the FGV. For other countries the indexes used are those of the producer’s price, the wholesale or any other index that comes closer to the foreign trade products price.
The weight associated with each country depends on its trade with Brazil. This weight is periodically revised. The FGV considers in this calculation 16 bilateral exchange rates between Brazil and each of the following countries: Germany, Argentina, Belgium, South Korea, USA, France, Philippines, the Netherlands, Indonesia, England, Italy, Japan, Malaysia, Paraguay, Thailand, Uruguay.
The National System of Consumer’s Price – SNIPC, consists of a combination of processes aiming at producing consumer’s price indexes. The objective is to monitor the price variation of a set of products and services consumed by families.
The system comprises the metropolitan regions of Rio de Janeiro, Porto Alegre, Belo Horizonte, Recife, São Paulo, Belém, Fortaleza, Salvador and, besides the Federal District and the municipality of Goiana. By aggregating the regional indexes referring to the same income group one gets the national index.
The monthly indexes are usually obtained by comparing effective prices in the 30 (thirty) days of the reference period with those of the 30 (thirty) days of the base period. The integral price collecting is carried out at each period of 30 (thirty) days, divided without break into 4 (four) sub-periods. Each one of them contains about 7 (seven) days with dates defined by the Annual Collecting Calendar of the SNIPC.
In a sub-period it is carried out one fourth of the envisaged institutions. Therefore it is possible to get from the system 30-day indexes relative to the base and the reference period at the end of each set of four sub-periods.
The indexes can be obtained for different goal-populations if the respective weighting structure corresponding to families of different monthly income group are available.
Besides the monthly indexes, one can as well calculate from the historical series produced the price variations that occurred in 2 (two) or more months.
Pointing out that the system permits alternative possibilities of calculating indexes, we describe below the National Consumer’s Price Index.
The INPC and the IPCA are calculated in a continuous and systematic way for the areas included in the system. The Wide National Consumer’s Price Index – IPCA, is used by the Central Bank for monitoring the objectives established in the inflation goal system and adopted from July 1999 on for signaling the monetary policy.
The target population of the INPC are families with monthly income between 1 (one) and 8 (eight) minimum wages whose head is mainly a salaried employee living in the urban areas of the regions while the IPCA refers to families with income between 1 (one) and 40 (forty) minimum wages, whatever the source of this income, and living in the urban areas of the region.
For each region, the following information from the basic research are used:
a) Basic Research
Familial Budget Research - POF
It was carried out between October 1st, 1995 and September 30th , 1996. It furnished the weighting structure for the target population.
Buying Places Research – PLC
It was carried out in May and June 1998. It furnished the information concerning suppliers and its updating is continuous.
Research of Products and Services Specification -PEPS
It was carried out in each of the regions when the system was established for all products and services included in the weighting structure. It furnished the register of researched products and services which is permanently updated in order to follow the market’s dynamics.
b) Main Investigated Variables and Investigation Units
The prices obtained are those effectively charged to the consumer for cash payment.
The research is carried out in commercial establishments, service providers, residences and public services concessionaires.
c) Geographical Inclusion
It includes the metropolitan regions of Rio de Janeiro, Porto Alegre, Belo Horizonte, Recife, São Paulo, Belém, Fortaleza, Salvador and Curitiba, besides the Federal District and the municipality of Goiânia.
The indexes are calculated for each region. In the first step of the synthesis one obtains from the monthly collected prices the estimate of their variation referring to each researched product.
These estimates are obtained by calculating the simple arithmetic average of the local prices of product samples that is compared in two consecutive months therefore producing the relative averages.
By aggregating the relative average of the products through a geometric average, the price variation of each sub-item is calculated and this is the smallest index aggregation that has explicit weighting.
From this point on the Laspeyres formula is applied and then one obtains the further levels of aggregation, namely item, sub-group, group and finally the general index of the region.
The national indexes – INPC and IPCA are calculated from the regional indexes results by arithmetic average weighting.
The INPC weighting variable is the “urban resident population” (Population Census of 1996) and that of IPCA is the “total urban income” (National Research by Residence Sampling – PNDA/96).
f) Collecting Period
The INPC and IPCA collecting period is in general from the 1st to the 30th of the reference month.
g) Time between Collecting and Publishing
Approximately 8 (eight) working days.
h) Start of research
January/1979 - Rio de Janeiro;
June/1979 - Porto Alegre, Belo Horizonte and Recife;
January/1980 - São Paulo, Brasília and Belém;
October/1980 - Fortaleza, Salvador and Curitiba;
January/1991 - Goiânia;
The Brazil series is available since September 1981.
A price index calculated from the Domestic Income and the Domestic Product is commonly denominated Implicit Price Deflator. Specifically, the GDP Implicit Deflator is the ratio between the Nominal GDP and the Real GDP, that is, it is the price of one unit of the Brazilian product in a specified year relative to its price in the base year.
The Consumer’s Price Index (IPC) is calculated by the Fundação Instituto de Pesquisas Econômicas (FIPE) – a research institution linked to the Economy and Administration Faculty of the University of São Paulo – and was established by the São Paulo Municipality aiming at readjusting the salaries of civil servants. This index indicates the cost of living of families in São Paulo since 1939. But only from 1973 on it has been calculated by FIPE.
The collecting period is from the first to the last day of the current month and the result is published on the 10th of the subsequent month. Each week anticipated results are disseminated and they are simply the prices of the last four weeks compared with those of the four previous ones.
The calculation system of the four-weekly IPC-FIPE variation includes a collecting period of 8 (eight) weeks. The variations are obtained by comparing the average prices of the last four weeks with those of the first four ones. FIPE calculates in each week the four-weekly IPC variations for a family income between 1 (one) and 20 (twenty) minimum wages.
For a universe of people who earn from 2 (two) to 6 (six) minimum wages the composition of expenses for calculating the index is the following: Food (30.81%), Personal Expenses (12.52%), Housing (26.52%), Transport (12.97%), Clothing (8.65), Health and Personal Care (4.58) and Education (3.95).
The Inter-Trade Union Department of Social Economical Studies (Departamento Intersindical de Estatística e Estudos Sócio-Econômicos in Portuguese - DIEESE) calculates some of the main conjuncture economical indexes of the São Paulo state. Among theses indexes we could mention the Employment and Unemployment Research carried out together with the State Data Analysis System Foundation (Fundação Sistema Estadual de Análise de Dados in Portuguese - SEADE) and the Cost of Living Index (ICV), calculated by DIEESE since 1959.
The ICV is calculated so that the several trade unions can estimate the cost of living in the municipality of São Paulo. The collecting period is from the first to the last day of the fiscal month and it is published around the 10th of the following month.
For the universe of people who earn from 1 to 30 minimum wages the expenses composition for calculating the index is the following according to the 1994/1995 POF: 1.Food (27.44%), 2. Housing (23.52%), 3. Domestic Equipment (6.13%), 4. Transport (13.62%), 5. Clothing (&.87%), 6. Education and Reading (6.91%), 7. Health (8.18%), Recreation (2.08%), 9. Personal Expenses (3.96%) and 10. Different Expenses (0.29%). The collecting period is from the first to the last day of the civil month and it is published around the 10th of the following month.
Nominal GDP is the value of goods and services at current prices. Its value is calculated by multiplying the variation of the real production of the sectors by the price index for each of the sectors. The Real GDP is the value of goods and services measured at constant prices. It is a better measure of the economical well-being since it takes into account the total production of goods and services without the influence of price variations.
In order to represent different variables that have 15 orders of magnitude it is necessary to use a logarithmic scale as shown in Figure 1. The agreement between the two longest indexes, namely the GDP implicit deflator and the General Prices Index seems quite good considering that the institutions responsible for them are independent and use different methodologies.
Figure 1:Prices Indexes in Brazil in a logarithmic scale
In Figure 1 the slope of the curve indicates the inflation rate in the period. Since 1947 there has not been any significant period with such a low inflation.
Figure 2: Inflation Indexes between 1990 and 2003 in a linear scale
In a linear scale the differences become more visible but it is impossible to represent the whole period in the same scale because the first years have zero values. But from 1994 on this is possible for a larger number of years due to the relatively low inflation observed (Figure 2).
Table 1: Annual Values of Price Indexes Relative to 1995 (in Real )
(*) For 2003 June and July average
Figure 3: Relative values of inflation indexes
Table 2: Inflation indexes/ GDP deflator
Graphic Edition/Edição Gráfica:
Tuesday, 11 November 2008.