The National Consumer Price Index (INPC) is an instrument created by the IBGE, in 1979, and serves to show the increase in the cost of living for ordinary people. Do you know why this is important? Monitoring the impact of inflation on Brazilian’s daily life is one of the reasons.
The inflation is an economic phenomenon that really brings out tranquility and sleep for many people. It has terrible consequences, especially in the lives of the poorest and, during the past century, it has shaped the way Brazilians deal with their own money.
INPC establishes the variation in prices of products and services in the retail market. In this way, it is determined, in an exact way, how much the population’s cost of living increased during a certain period of time.
But its importance goes far beyond just calculating how much more basic products have become more expensive. INPC is also the main index used by the Federal Government to calculate the readjustment of the minimum wage and used by workers and employers to negotiate salary increases.
Continue reading this article and learn a little more about this important index. Good reading!
What is INPC?
As already mentioned, INPC is an index that determines how much the cost of a product or service has varied over a given time. Since the 1979 decade, IBGE has carried out this research, which focuses on the consumption of families with a monthly income of up to 5 minimum wages.
Due to this particularity, INPC is strongly influenced by the readjustment in the prices of basic products and services. Thus, when there is an increase in the prices of food, cooking gas and public transport, for example, it is directly impacted.
This index is one of the most used by workers to negotiate salary readjustments. In addition to the INPC, the Broad Consumer Price Index (IPCA) is another important inflation gauge. However, the IPCA focuses on the consumption of families with a wage income of up to 40 minimum wages, which is why it is a more comprehensive indicator.
The IPCA is considered the main inflation index in the country. It is widely used to readjust rental prices. The Federal Government also uses this index to verify compliance with inflation targets.
How is INPC calculated?
The calculation of the National Consumer Price Index is done in a very simple way. IBGE, through the National Consumer Price Index System (SNIPC), collects data between the first and the last day of the reference month.
The information is obtained from surveys carried out in commercial establishments, private service providers, public service concessionaires and directly in households. Due to the size of the Brazilian population, the SNIPC conducts research in only 13 capitals:
- Belo Horizonte;
- Large field;
- Porto Alegre;
- Rio de Janeiro;
- São Paulo ;
It is good to remember that the families that participate in the research belong to the urban area of each participating region.
As stated, the target audience for this research is the population with monthly income between 1 and 5 minimum wages – according to the IBGE, this is the income of 50% of Brazilian families. This is because there was an interest in creating an indicator capable of accurately determining the impact that the most economically vulnerable population feels with price changes.
What most characterizes this group, in addition to the lower income level, is the fact that these families use the total monthly income in current consumption of food and medicines.
To determine a value for INPC, IBGE obtains a Consumer Price Index (CPI) for each region of the survey. Then, with the set of these data, a value is determined for the entire national territory – which is the National Consumer Price Index itself.
In order to avoid errors, data collection is performed using the same method in all surveyed regions. This ensures that the information obtained is treated in a unique way, offering more consistency for the study.
Altogether, nine groups of services and products are considered in the calculation, which are:
- food and drink;
- residence articles;
- personal expenses;
- health and personal care;
Each group is divided into other items, and in order to calculate the INPC, the total price variation of 465 products or services is considered.
What influences the calculation of the index?
In order for INPC to be able to clearly show the impact that price variation has on low-income families, IBGE adopted different weights for certain items that make up the indicator. Thus, when the prices of these articles increase, the population in focus suffers more to adjust their budget.
Thus, some basic products – such as food, gas and public transport – have a greater weight in the calculation of INPC. A curiosity: the weights of this index are different from those used in determining the IPCA.
The factors considered for the calculation of the National Consumer Price Index are:
- food and beverages – 31.42%;
- housing – 17.53%;
- transportation – 15.49%;
- health and personal care – 9.70%;
- personal expenses – 7.38%;
- clothing – 7.22%;
- Residence articles – 5.00%;
- communication – 3.26%;
- education – 2.95%.
Similarly, each region in which the research is carried out has a different weight. This is due to changes in the sample population caused by changes in the income range. Therefore, the weight of each region is as follows:
- São Paulo – 24.24%;
- Salvador – 10.67%;
- Belo Horizonte – 10.60%;
- Rio de Janeiro – 9.51%;
- Porto Alegre – 7.38%;
- Curitiba – 7.29%;
- Recife – 7.17%;
- Belém – 7.03%;
- Fortaleza – 6.61%;
- Goiânia – 4.15%;
- Brasília – 1.88%;
- Vitória – 1.83%;
- Campo Grande – 1.64%.
How does INPC influence the real estate market?
Although this study calculates the loss of consumption power in the lower income classes, fluctuations in this index are also feared by the real estate market.
Imagine the following situation: a family pays R $ 1,000 in rent. Seeing inflation rising, it is possible that these people may not be able to save money in order to be able to enter their own home.
Another possible scenario is that they decide to live in favor with relatives to save their rent money, damaging the income of the property owner.
Finally, these people may also lose control of their financial lives, becoming indebted and having difficulties in obtaining approved credit financing.
Although the INPC does not speak specifically about the construction, rental or purchase of real estate market, it is undeniable that it signals turbulence in the economy.
This sign is even more worrying when a company works precisely for the range of society analyzed by INPC. Builders or real estate agents who have people who receive up to five minimum wages their target audience usually pay attention to the results presented by IBGE.
What is the IGP-M?
There are several indicators of inflation, and they all need to be understood by people who are interested in buying a property.
The General Market Price Index (IGP-M) is calculated by Fundação Getúlio Varga (FGV). This index analyzes the impact of inflation on micro and macroeconomics. That is agricultural and industrial raw materials, service goods, wholesale products, etc.
This FGV study verifies how inflation impacted the entire society in the month surveyed.
You can use this index to assess the real estate market and understand how prices will change. If we know that products of agricultural origin are more expensive (wood, for example), it is likely that the investment needed for the roof of a house will need to be greater.
At the same time, if the cost of living for a property owner becomes more expensive, he is expected to readjust the rental prices.
For this reason, the government is attentive to the fluctuations in these indexes and may initiate measures to contain the increase in inflation. One of these measures is to change the Selic rate target, with the aim of making loans more expensive and reducing the inflow of money into the economy.
With higher interest rates, real estate financing becomes more expensive. This scenario causes the demand for properties to fall, helping to lower prices and enabling good buying opportunities to arise.
Logically, the scenario described in the previous paragraphs is only a simulation. The economy does not obey such predictable rules, as it is influenced by internal and external factors.
As it was possible to notice, the INPC and the IGP-M are important indexes to accompany the growth of inflation. In addition to being used in the calculation of wage adjustments, INPC helps to understand how the increase in prices influences the lives of people with lower wage income.
The IGP-M, on the other hand, shows the impact of macroeconomic decisions on the daily life of the Brazilian consumer.
Understanding the basics about the indexes that measure the health of our economy, such as INPC, will help you make better financial investments, buy more consciously and develop your critical sense when it comes to following the economic and political news.
So, be sure to share your doubts and suggestions for the next post with us in the comments!