IPI cut does not reduce home appliance or car prices

The 25% reduction in the Industrialized Products Tax (IPI) rate, being 18.5% in the case of vehicles, valid since February 25, did not reach the consumer, inflation indicators point out. The IPCA (National Broad Consumer Price Index), the government’s official inflation index, released this Friday (8) shows that durable goods that have started to pay less tax, such as refrigerators, washing machines, stoves and cars, have slowed down. the readjustments, but they continued to rise in prices in the last two months.

The tax relief on household goods and vehicles is not reducing prices of these consumer durables for two reasons, say businesspeople and economists: other items continue to put pressure on costs; and part of the tax cut was in the middle of the road, that is, it became a profit margin in the chain, between the factory and the store.

Professionals heard by UOL say that the cycle of raw material price readjustments continues to raise industry costs. Therefore, they say, there is little room for price reduction for the consumer in the coming months, even with the maintenance of the IPI cut for longer.

For economists and businessmen, the lower IPI can, at most, contain a larger wave of adjustments to home appliances and vehicles.

It is clear that the IPI cut has some effect. But the IPI is part of the taxes, which in turn are part of the costs. The final retail price may even drop somewhat in the coming months, but part of the tax reduction will remain in the cost chain. The ideal would be a permanent cut in the tax burden, which today reaches 37%.
Fábio Pina, economic advisor at FecomercioSP (Federation of Trade in Goods, Services and Tourism of São Paulo)

Among the durable consumer goods benefited by the IPI reduction, only the item televisions had a price reduction in March. But this movement was due more to the fall of the dollar. Almost all the materials in the devices are imported, from the screen to the chips.

The other durable items even slowed down the rise in prices, but the readjustments continued between February and March.

See below the price changes of some durable consumer goods in February and March, according to the IPCA survey, carried out by the IBGE (Brazilian Institute of Geography and Statistics).

Monthly variation in February and March by IPCA

  • IPCA: + 1.01% (Feb.) / + 1.62% (Mar.)
  • Fridge: +4.13% / +1.03%
  • Washing machine: +3.24% / +1.14%
  • Stove: +2.11% / +2.24%
  • TV: +0.33% / -3.02%
  • new car: +1.68% / +0.47%

The industry continues to run against cost inflation to rebuild profit margins. In the 12-month period, all home appliances and vehicles accumulate higher readjustments than the average inflation, measured by the IPCA.

Change in 12 months to March by IPCA

  • IPCA: +11.30%
  • Fridge: +26.35%
  • Washing machine: +17.67%
  • Stove: +21.18%
  • TV: +12.84%
  • new car: +18.24%

Reduction of only 0.2 percentage point

The coordinator of the Consumer Price Index at the Brazilian Institute of Economics, at the Getulio Vargas Foundation (Ibre/FGV), André Braz, calculated the maximum potential impact that the IPI cut would have on consumer inflation at 0.2 percentage point.

Thus, in the accounts of the economist at Ibre/FGV, an annual inflation of 6.5% would be 6.3% if the tax cut were passed on in full.

But the economist himself discards this movement because other costs, such as freight and plastic resins, for example, continue to rise in price because of the appreciation of oil, in a movement caused by the war between Russia and Ukraine.

The reduction in the prices of consumer products due to the lower IPI may come up against other pressures in the production chain itself. We still have bottlenecks from the covid season. And the car industry is proof of that. We see cost increases because of the lack of inputs.
André Braz, IPC coordinator at Ibre/FGV

The economist says that part of the IPI reduction should be used to restore the industry’s profit margin, which has been affected, on the one hand, by the increase in costs and, on the other, by the reduction in sales.

“A part [da redução do IPI] can become the industry’s edge. It’s hard to see now. What we see is that prices are still rising,” said Braz, from Ibre/FGV.

Other cost pressures

When the IPI cut was announced, Anfavea, which brings together vehicle manufacturers, estimated that the price reduction for the final consumer would be from 1.4% to 4.1%, depending on the models and commercial strategy of each manufacturer.

The higher the IPI rate, the greater the weight of the tax on the final price. As more powerful engine models pay higher IPI rates, these vehicles could potentially have a more noticeable price reduction.

But the president of Anfavea, Luiz Carlos Moraes, said that other inputs from the auto industry continue to put pressure on production costs. The appreciation of oil, for example, continues to make plastics and other petrochemical materials more expensive.

The inflation we are facing continues to impact production, input, fuel and energy costs. The IPI helped to mitigate the cost increases, but the automakers passed on the IPI reduction at least in part.
Luiz Carlos Moraes, president of Anfavea

The latest Broad Producer Price Index (IPA) calculated by the FGV, which measures inflation in production and in industry, before reaching the consumer, in fact showed that cost pressures were even greater in March than in February.

The March IPA was strongly influenced by oil derivatives. The increase in diesel went from 2.70% in February to 16.86% in March. In gasoline, the variation accelerated from 1.71% to 12.69%. Iron ore, which had retreated 0.1% in February, increased by 2.82% in March.

Monthly variation in February and March by IPA

  • IPA all items: +1.94% / +2.80%
  • raw materials: +1.73% / +3.64%
  • intermediate goods: -1.31% / +3.19%
  • final goods: +1.73% / +3.64%

Weak consumption could force retail prices down

Despite these rising costs in the industry, retail may be forced to partially pass on the IPI cut to final consumers in the coming weeks because of the weak economy, says the president of the Brazilian Institute of Retail & Consumer Market Executives (Ibevar) , Claudio Felisoni de Angelo.

According to Ibevar surveys, retail sales fell by 1.56% in March compared to February and should have another drop of 1.53% in April compared to March.

For May, for now, sentiment surveys with retailers show stagnant sales.

This weak consumption is caused by inflation, which already exceeds 11% a year, and is continuously eroding the purchasing power of families. In addition, says Felisone, high interest rates make the installment plan more expensive and also hinder retail sales, which can be left with stranded inventories.

The IPI cut will be passed on or not to the consumer if there is fierce competition. And, due to this weak demand scenario, retail may tend to pass on part or all of the tax cut.
Claudio Felisoni de Angelo, Ibevar