Inflation: an analysis between the variation of the Basic Food Basket value and the regional Purchasing Power

doi:10.21203/rs.3.rs-4613309/v1

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Inflation: an analysis between the variation of the Basic Food Basket value and the regional Purchasing Power

https://doi.org/10.21203/rs.3.rs-4613309/v1

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This work investigates the evolution of purchasing power in one of the most important urban expansion fronts in ES between 2010 and 2022, comparing it with various Brazilian states. The results indicate that the purchasing power of the population in the analyzed Brazilian states has decreased over the years and that the value of the Basic Food Basket has not yet managed to meet the constitutional assumptions regarding the commitment of the Minimum Wage to food items. In the analysis of regional indices, the results demonstrate that changing establishments can provide advantages (savings) of up to 20.5% in purchase value.

JEL Classification: E31; R10; J17.

Macroeconomics

Inflation

Price Variation

Purchasing Power.

The prices of the set of basic foods that make up the Basic Food Basket have shown persistent growth over the years. Only in the last five years (2018-2021), practically all Brazilian capitals showed an increase in the value of the Basic Food Basket, indicating signs of rising inflation indices (Dieese, 2023). This phenomenon has further worsened in subsequent periods due to the effects caused by the COVID-19 pandemic, where product prices experienced an increase above historical averages, impacting the purchasing power of the population and exacerbated by persistent rises in individuals' debt levels (Leandro & Botelho, 2022; Silva et al., 2023, 2024). In this scenario, price dispersion across all markets incentivizes price research (Najberg, 1994).

In this context, in recent decades there has been a growing concern from governments to control the widespread and continuous increase in prices, either through tax exemptions or subsidies, as witnessed in recent years – such as the reduction of ICMS on fuels from Complementary Law Project 18/2022 (BRASIL, 2022) and law projects that zero taxes on basic food basket items proposed by Complementary Law Project 279/2020 (BRASIL, 2020) – with a view to mitigating the impact of these taxes on purchasing power and achieving (or maintaining) Brazilian economic stability. The reduction of the tax rate allows for an increase in disposable income for families, which, in turn, will expand consumption and aggregate demand (Almeida, 2020).

Inflation is a process of widespread and continuous price increases that results in the loss of the currency's purchasing power. It affects the purchasing power of the population and causes various distortions in the economy (Pinho et al., 2017), continuously reducing the real price of goods, being an important indicator of well-being for society (Arruda & Brito, 2017; Najberg, 1994). In Brazil, it led to the creation of many different indices that reflect the variation of thousands of prices and are calculated through a weighted average of a consumption basket of a specific segment of society or household income.

In Brazil, the Extended Consumer Price Index (IPCA) is currently the benchmark for the inflation targeting regime. However, although it is the official index, consumers often claim that their expenses have increased at very different rates than those announced by inflation indices and, consequently, do not reflect the loss of their purchasing power. According to a renowned opinion research institute, one in two people believes their personal inflation is higher than what is reported (Quadros, 2008).

The main reason for this phenomenon can be explained by the fact that research institutes, when determining these inflation indices, need to define measurement criteria, the simplest form of which is to compose a basket of goods and measure the behavior of their prices over a certain period. This situation points to a significant difficulty in comparing the published indices with the cost of living of a specific population, as people consume different baskets of goods in different proportions. Therefore, price variations end up impacting families according to their consumption profiles.

Adding to this, the fact that most of the time the basket of goods used to calculate these indices does not coincide with the spending profile of a particular individual or family contributes to such distortions. For low-income families, it is noted that food and public tariffs carry significant weight in the family budget (Lino, 2019). Furthermore, price samples are taken from various regions of the country, with region-specific weights and predefined income brackets, which aim to measure the entire country but may become less representative for different socioeconomic levels. Thus, inflation indices tend to reflect a weighted reality corresponding to the population across Brazil, rather than how much the cost of living has increased in a specific region. Therefore, the Consumer Price Index measures the variable cost of a fixed market basket for an average consumer (Hagemann, 1982).

Although there are challenges in reflecting regional realities, we cannot dismiss the importance of official indices in the decision-making process. The calculation of the Basic Basket in Brazil, its variations, and the adequate Minimum Wage to meet the fundamental needs of the population have become crucial economic analysis tools. They provide relevant data on market practices and price policies, serving as a preventive parameter against economic order violations (Paula et al., 2016).

Just as national indices are important, regional indices also provide valuable information for this process. Many regional institutions (businesses, employer associations, professional bodies, unions, etc.) use adjustments above the national inflation rate or above the Minimum Wage as benchmarks when setting prices, adjusting prices, or negotiating collective labor agreements. Their argument is that this approach minimizes inflationary losses. However, this may not hold true for specific localities within the country, where inflation rates may diverge significantly from national averages or from the perceived inflation by residents in those regions. If prices vary greatly among neighboring regions, it creates arbitrage opportunities, taking advantage of price disparities (Cifuentes & Robledo, 2019). Therefore, measuring price variations on a regional basis is crucial, in addition to the national perspective..

Several studies have focused on price indices for specific income brackets and demographic groups. In international literature, research findings indicate a significant difference between the inflation experienced by the poor and non-poor, affecting purchasing power in varying ways for different individuals (Michael, 1979; Hagemann, 1982); and low-income families, who are heavy consumers of food and fuel, are more likely to be disproportionately affected if inflation is concentrated in these specific items (Minarik, 1980).

In Brazil, studies analyzing price indices for specific income brackets assert that inflation tends to have a disproportionate effect considering income levels and timeframes. Lameiras et al. (2017), while developing an inflation indicator by income bracket, found that over the long term, inflation for the poorest segment varies more than that observed in higher income brackets. Lino (2019), in analyzing consumption baskets and inflation for low-income families, identified that food and public tariffs carry significant weight in the family budget. Arruda & Brito (2017) propose a mechanism for forecasting inflation from a regional perspective. Given the reported findings, the importance of research on this topic for society becomes evident.

Based on the above, this study aims to estimate the prices of the Basic Basket and its variation between the years 2010 and 2022 in four supermarkets located in different neighborhoods of Vila Velha city. Vila Velha is one of the main areas of urban expansion in the Metropolitan Region and one of the most populous municipalities in the state of Espírito Santo, Brazil. The goal is to develop an inflation index that closely reflects local reality and provides a more realistic measurement of purchasing power variation for individuals earning the minimum monthly wage. Additionally, the study compares changes in purchasing power across various states in Brazil.

The relevance of this research is grounded in several key points:

(i) The importance of official price indices (and inflation) in national monetary policy (Central Bank of Brazil, 2016; Arruda & Brito, 2017), where comparing them with regional indicators can provide valuable insights for implementing local policies such as tax exemptions or subsidies;

(ii) Prices (and their variation) serve as a measure allowing consumers to assess the adequacy of their income and purchasing power;

(iii) Consumer behavior is influenced by changes in prices of goods and services;

(iv) The significance of the Minimum Wage and its purchasing power in household budgets, especially considering that nearly half (45.8%) of Brazilian households have incomes below twice the Minimum Wage (IBGE, 2010), and finally;

(v) The research aims to construct a regional cost of living indicator and a price variation index that more closely reflects the true inflation rate perceived by consumers in the studied region.

2.1 Concept of Inflation

Inflation is defined as a monetary phenomenon characterized by a sustained and widespread increase in the overall price level within an economy (Blanchard, 2017). It is one of the key economic variables in the formulation of monetary policy and serves as an important indicator of economic supply conditions and societal well-being. Inflationary processes erode individuals' purchasing power, increase variability in relative prices, and disrupt the forecasting horizon for economic agents (Arruda & Brito, 2017).

Currently, Brazil utilizes various indices to measure inflation, with the primary ones being the Broad Consumer Price Index (IPCA) and the National Consumer Price Index (INPC), both calculated by IBGE (Brazilian Institute of Geography and Statistics). Table 1 outlines the main inflation indices in Brazil and their calculation methodologies.

Table 1

**Main Inflation Indexes in Brazil.**
Responsible Body	Index	Name	Methodology
FGV	IGP	General Price Index	Weighted average of IPA, IPC, and INCC
	IPA	Wholesale Price Index	Measures the variation of prices in the wholesale market.
	IGP – DI	General Price Index - Domestic Availability	Index that attempts to reflect monthly price variations, surveyed from the 1st to the last day of the current month.
	IGP – M	Market General Price Index	Index that attempts to reflect monthly price variations, surveyed from the 21st of one month to the 20th of the following month.
	IGP – 10	General Price Index 10	Index that attempts to reflect monthly price variations, surveyed from the 11th of one month to the 10th of the following month.
USP	IPC – FIPE	Consumer Price Index of the Foundation Institute of Economic Research	Index that attempts to reflect the cost of living for families with income from 1 to 20 minimum wages.
DIEESE	ICV – DIEESE	Cost of Living Index	Index that attempts to reflect the cost of living for families with average income of R$ 2,800.
IBGE	INPC	National Consumer Price Index	Index that attempts to reflect the average cost of living in the 11 main metropolitan regions of the country for families with income from 1 to 5 minimum wages.
IBGE	IPCA	Broad National Consumer Price Index	Index that attempts to reflect the cost of living for families with monthly income from 1 to 40 minimum wages
Source: O Globo (2014)

Most studies related to consumer price inflation in Brazil utilize the IPCA, considered the government's official indicator for inflation targets. According to IBGE (2013), the National System of Consumer Price Indices (SNIPC) periodically conducts the continuous and systematic production of indices by collecting prices from commercial establishments, service providers, public utility companies, and households (for rent and condominium surveys). Based on the collected data, the indices are divided into two main groups: the first covers households with monthly incomes ranging from 1 (one) to 5 (five) minimum wages, known as INPC; and the second is IPCA, which aims to measure the cost of living variation for households with monthly incomes ranging from 1 (one) to 40 (forty) minimum wages per month (IBGE, 2013).

The methodology of IPCA until the end of December 2013 did not include the cities of Vitória, ES, and Campo Grande, MS in its calculation. These locations were only incorporated into SNIPC from January 2014 onwards, following the publication of Technical Note 03/2013 by IBGE, as seen in Table 2.

Table 2

**Weighting for calculating the IPCA until December 2013 and from 2014 onwards.**
	Until December 2013		From January 2014
Area	IPCA	INPC	IPCA	INPC
Belém	4,65%	7,03%	4,65%	7,03%
Fortaleza	3,49%	6,61%	3,49%	6,61%
Recife	5,05%	7,17%	5,05%	7,17%
Salvador	7,35%	10,67%	7,35%	10,67%
Belo Horizonte	11,23%	10,60%	10,86%	10,60%
Vitória	0%	0%	1,78%	1,83%
Rio de Janeiro	12,46%	9,51%	12,06%	9,51%
São Paulo	31,68%	24,24%	30,67%	24,24%
Curitiba	7,79%	7,29%	7,79%	7,29%
Porto Alegre	8,40%	7,38%	8,40%	7,38%
Campo Grande	0%	0%	1,51%	1,64%
Goiânia	4,44%	4,15%	3,59%	4,15%
Brasília	3,46%	1,88%	2,80%	1,88%
Brasil	100,00%	100,00%	100,00%	100,00%
Source: IBGE (2013)

With the inclusion of the cities of Vitória and Campo Grande, there was an expansion in the number of locations surveyed by SNIPC. Conversely, there has been a relative decrease in the percentage representation of other areas under the previous methodology. This rearrangement illustrates the legislature's concern in broadening the geographic coverage of consumer price indices.

The calculation methodology of IPCA also considers the composition of household expenditures, creating weighting structures based on the spending profiles determined by the Household Budget Survey. The participation weights of product and service groups in determining the index can be seen in Table 3.

Table 3

**Weight of Product and Service groups**
Type of Expense	Before 12/31/2011	After 12/31/2011
Food and Drink	23,46%	23,12%
Transport	18,69%	20,54%
Housing	13,25%	14,62%
Health and Personal Care	10,76%	11,09%
Personal Expenses	10,54%	9,94%
Clothing	6,94%	6,67%
Communication	5,25%	4,96%
Household Items	3,90%	4,68%
Education	7,21%	4,37%
Total	100,00%	100,00%
Source: IBGE (2013)

The data presented in Table 3 illustrate three major expenditure groups that have a significant share in the household consumption basket: (i) food and beverages, (ii) transportation, and (iii) housing; with food and beverages alone representing approximately one-fourth of total household expenditures. Moreover, this category assumes great importance for estimating inflation and determining the Minimum Wage needed to meet the fundamental needs of the population: Decree Law No. 399, in its Article 6, stipulates that the portion of the Minimum Wage corresponding to food expenditures must not be less than the cost of the National Basic Food Basket. From this fact, it follows that expenditure on food, based on a family of two adults and two children, should be sufficient to purchase 3 (three) Basic Food Baskets, representing around 23.12% of the family budget (Table 3).

2.2 Inflation Targeting Regime

Since the 1990s, an increasing number of countries have adopted inflation targeting as a monetary policy framework (Fonseca, 2011) The goal is to achieve low inflation rates in both the short and medium terms (Blanchard, 2017). This regime became a standard monetary policy approach in the 1990s for many countries aiming to stabilize their prices, including Brazil. The theoretical framework behind inflation targeting originates from new classical economics and its main feature is setting a numerical target for inflation (Fonseca, 2011).

In March 1999, due to market uncertainty regarding the impact of currency devaluation on inflation, the Brazilian government introduced Decree No. 3.088/1999, establishing a framework of inflation targeting for monetary policy (BRASIL, 1999). Implemented during a period of significant currency devaluations resulting from speculative attacks, stemming from developments in the Real Plan's policy, the Inflation Targeting Regime aimed to combat high inflation experienced by the Brazilian economy through policies aimed at stabilizing the national currency and economic liberalization (Fonseca, 2011).

According to BACEN (1999), the inflation targeting regime is a monetary framework in which the Central Bank commits to act in a manner that ensures actual inflation remains in line with a publicly announced pre-established target. It is based on setting an explicit goal for price variation by monetary authorities and the commitment of central banks to use necessary instruments to achieve the desired outcome. It operates on the fundamental premise that the primary objective of monetary policy is to attain and maintain a low and stable inflation rate.

Therefore, the inflation targeting policy is implemented using models that enable the Central Bank to forecast inflation based on announced targets. These forecasts guide monetary policy decisions, and its effectiveness depends on assessments of deviations between projected and target prices (Chauvet, 2001).

Regarding the basic institutional design characteristics of an inflation targeting regime, BACEN (1999) points out the following: (i) choice of inflation index: The regime can choose between using the full index or a core inflation measure; (ii) definition of the target: the target can be a specific point or a range (band). In the case of a range, there may or may not be a central target within that range; (iii) target horizon: This refers to the reference period used to evaluate whether the inflation target has been met; (iv) escape clauses: these are predefined conditions that may justify deviations from the inflation targets, and; (v) transparency: this involves how the monetary authority communicates with the public to inform them about the implementation of the inflation targeting regime.

In Brazil, the inflation targeting regime has chosen IPCA (Broad Consumer Price Index) as the government's official indicator for assessing inflation targets, with guidelines outlined in Resolution No. 2.615/1999. IPCA is a type of Laspeyres index that calculates changes in prices of goods and services between two periods (by comparing prices that were in effect during the 30 days of the reference period with those of the base period), weighting the expenditure shares of each item in total consumption. The expenditure categories that make up the IPCA structure include: food and beverages, transportation and communication, personal expenses, clothing, housing, health and personal care, and household articles (Carrara & Correa, 2012).

In the Brazilian regime, all items included in the IPCA price survey are considered for the inflation index, using the full method for two main reasons. Firstly, because although in the long term the inflation core and overall inflation tend to converge, in the short term they can diverge significantly. Secondly, due to issues related to transparency and credibility (Banco Central do Brasil, 2014).

The types of expenditures that compose the IPCA are divided into two main groups: (i) market-determined prices, which are influenced by the forces of supply and demand in the economy, and (ii) administered prices, which are minimally or not at all influenced by the forces of supply and demand (Carrara & Correa, 2012).

The term "administered prices" is defined by the BACEN (2013) as "prices that are insensitive to supply and demand conditions because they are established by contract or by a public authority." Therefore, it is noteworthy that in the methodology for calculating the IPCA, currently 23 goods and services in the basket are classified as administered prices. These include public services, goods produced by public companies, taxes, and fees paid to the three levels of government, together accounting for 23.34% of the index as of March 2013.

The importance of this component lies in the fact that between 1996 and 2007, the inflation of administered prices was consistently higher than that of market-determined prices, which posed challenges for monetary policy management. This is because administered prices have discretionary adjustment periods and their adjustments can be significant, resulting in much lower elasticity of administered prices to changes in monetary policy (Carrara & Correa, 2012). It is worth noting that from May 2007 onwards, the inflation of market-determined prices exceeded that of administered prices in the 12-month accumulated period (BACEN, 2013).

In Brazil, since 2005, a target inflation rate of 4.5% has been adopted, with an interval band of 2.0% above or below this target and a critical upper limit set at 6.5% (Fonseca, 2011). The band exists because no Central Bank has complete control over price behavior, and the presence of bands allows the Central Bank to partially accommodate some shocks. This means it can meet the target without monetary policy becoming excessively restrictive.

Figure 1 illustrates the inflation history over the past 20 years. It shows that this index reached a minimum of 3.14% in 2006 and peaked at 12.53% in 2002.

The data from Fig. 1 illustrates that after the year 2004 (with the exception of 2015), the Brazilian government managed to keep the Brazilian inflation rate within the target set by the Inflation Targeting Regime, often very close to the upper limit but still far from the target center.

2.3 Consumer purchasing power

The satisfaction of a consumer is based on the premise that individuals behave rationally to maximize their satisfaction in acquiring a set of goods and services within their budget (Pindyck & Rubinfeld, 2013). In this context, the larger the budget, the greater the consumption capacity.

When moving between different locations in the country, significant differences in population income can be identified (Junior et al., 2019). Therefore, the cost-of-living differential between locations not only represents a dynamic area of study for academic discussions but also has important implications for decision-making regarding resource allocation by economic agents and the provision of subsidies for public policies (Almeida & Azzoni, 2016).

However, the purchasing power of the population does not always keep pace with the evolution of prices. In cases where price changes exceed the adjustment index of personal income, a process of purchasing power erosion begins. At this point, consumers face a situation where they need to make choices based on restricted baskets of products within their income level, ideally sufficient to meet their essential needs and ensure their subsistence for a certain period.

Regarding essential needs such as food, housing, hygiene, and transportation, Brazil established through Law No. 185/1936, regulated by Decree Law No. 399/1938, the concept of "Minimum Wage." This is described as the minimum remuneration owed to the worker capable of satisfying, in a specific region of the country and at a particular time, their normal needs for food, housing, clothing, hygiene, and transportation (BRASIL, 1936).

Decree No. 399 establishes a spending structure for a worker and stipulates for the items that compose this structure (housing, food, clothing, transportation, and hygiene), a weighting where the total sum is 100%. Moreover, it also assumes that the portion of the minimum wage corresponding to food expenses cannot be less than the cost of the National Basic Food Basket (DIEESE, 1993). In this context, to maintain the purchasing power of the population, it is understood that the Minimum Wage should at least keep up with the price evolution of these items.

The Basic Food Basket today is defined by the Inter-Union Department of Statistics and Socio-Economic Studies - DIEESE, which uses a composition of 13 food items in defining the National Basic Food Basket. This basket serves as a benchmark to monitor the evolution of prices (inflation or deflation) through monthly surveys in some state capitals across Brazil.

With the establishment of Regional Offices, DIEESE implemented the monitoring of the basket in 16 state capitals of the country. The function of the survey is to track monthly price changes and the monthly cost of each product, as well as the number of hours an individual earning the minimum wage needs to work to acquire them.

In Brazil, it is important to note that the list of products included in the composition of the Basic Food Baskets varies by region, depending on their purpose. Therefore, the structure (the products included and their respective monthly quantities) was defined by Decree 399/1938, which remains in effect, as shown in Table 4.

Table 4

**Structures of Basic Food Baskets by region**
Foods	Região 1	Região 2	Região 3
Meat (Kilo)	6,0	4,5	6,6
Milk (Liter)	7,5	6,0	7,5
Beans (Kilo)	4,5	4,5	4,5
Rice (Kilo)	3,0	3,6	3,0
Flour (Kilo)	1,5	3,0	1,5
Potato (Kilo)	6,0	---	6,0
Tomato (Kilo)	9,0	12,0	9,0
French bread (kg)	6,0	6,0	6,0
Coffee Powder (Kilo)	0,6	0,3	0,6
Banana (unit)	90	90	90
Sugar	3,0	3,0	3,0
Oil (ml)	750	750	750
Butter	0,75	0,75	0,75

Region 1: SP, MG, ES, RJ, GO and DF,

Region 2: PE, BA, CE, RN, AL, SE, AM, PA, PI, TO, AC, PB, RO, AM, RR and MA,

Region 3: PR, SC, RS, MT and MS.

Source: DIEESE (2014)

The Table 4 served as a parameter for the composition of the quantity of each food item in the calculation of the Basic Food Basket value in the state of Espírito Santo (Region 01).

The methodology used in this research to calculate price variation is similar to the measure used for determining the IPCA. First, a basket of products was defined and the price changes of these items between two periods were verified, weighting their participation in the consumption basket according to the methodology used to calculate the value of the Basic Basket, as illustrated in Table 4. This is, therefore, a type of Laspeyres index.

The choice of the basket of products to be used as a parameter for measuring price variation in supermarkets was the Basic Food Basket. This choice is justified by the ease of research, the standardization of its components, and the fact that the analyzed sector (food) is less affected by economic crises due to its essentiality. Additionally, it is important to highlight that the Basic Food Basket is highly relevant in determining the national Minimum Wage.

It is worth noting that the list of products included in the composition of basic food baskets is not the same throughout Brazil, varying according to the purpose defined by each region. Thus, the structure, meaning the products that compose it and their respective monthly quantities, are defined in Decree 399/1938, which remains in force and were previously presented in Table 4.

For conducting the price survey of the products, the study area was first identified, in this case, the city of Vila Velha, as it is an important front of urban expansion in the Metropolitan Region and mainly because the educational institution is located in this region, allowing for lower costs with the researchers' travel for data collection. The sample comprised a total of four establishments located in four nearby neighborhoods: Centro, Coqueiral de Itaparica, Parque das Gaivotas, and Praia de Itapoã.

Once the research area was defined, it was necessary to standardize the basket of products to be surveyed. Thus, a list was fixed, keeping the product brand and weight constant to reduce distortions caused by changes in sampling. The quantities chosen were those provided for Region 01, described in Table 4, and in selecting the brands of products to be surveyed, a preliminary survey was conducted among undergraduate students from Higher Education Institutions in the Metropolitan Region of Vitória and residents of the city of Vila Velha, to identify which brand was most remembered by consumers. This established the panel of products for price collection.

The price collection of products in the aforementioned supermarkets was conducted by students of the subjects Mathematics Degree, Mathematics Applied to Administration, and Financial Mathematics, in the second half of August from 2010 to 2019 according to the academic offer of the subjects; and in the second half of August in 2022 by the authors of this work, aiming to maintain the same periodicity previously enabled (three-yearly). The collection took place over two distinct weeks and the prices presented are the average between the weeks. Thus, data collection occurred according to the availability of resources (students/subject offerings), which is why the resulting data are three-yearly.

Regarding the field research, it was conducted on-site and the prices were collected directly from the shelf, without the interference of any representative of the surveyed unit and without any unit of measure conversion. In the case of products where the measurement did not match the indicated one, the presented measurement was detailed. For products with weight, packaging, or pricing methodology different from those predefined in the product panel of this research, such as the price of bananas, which is measured in kilograms but referred to in units for the Basic Food Basket, an average was calculated between the weight and quantity of the item, resulting in the reference that on average seven bananas equal one kilogram.

Based on the collected data, the calculation of the price variation of the Basic Food Basket in each surveyed supermarket was carried out, thus determining the loss or gain of purchasing power for each product and each basket of products, and its representativeness in terms of "percentage over income", identifying the impact of the price on the budget of families with an income equal to one minimum wage. These values served as a baseline parameter for the type of consumer who usually shops in the analyzed neighborhoods.

In this section, we divide the presentation of the results into two topics: first, the results at the state level and their representativeness in relation to the current Minimum Wage, in order to illustrate the evolution of the population's purchasing power over the past years (2010–2022). Secondly, the results at the regional level (neighborhoods) and their representativeness in relation to the current national Minimum Wage, followed by an equivalent annual rate that describes the evolution (or involution) of the value of the regional Basic Food Basket.

4.1 State-Level Results

In this section, we present the evolution of the value of the Basic Food Basket in the state of Espírito Santo and the purchasing power of the population of Espírito Santo, measured by the ratio between the value of the Basic Food Basket and the Minimum Wage, as illustrated in Fig. 2.

For Fig. 2, the value of the Basic Food Basket is determined on the left axis, in reais, and the value of the ratio between the value of the Basic Food Basket and the Minimum Wage is on the right axis, in percentage.

In a preliminary analysis of the historical series presented in Fig. 2, the cyclicality of purchasing power over the periods can be noted: in January 2009, for example, the value of the Basic Food Basket consumed 57.5% of the income of families receiving a Minimum Wage, and in January 2010, this percentage decreased to 42.6%, indicating a gain in the purchasing power of the Minimum Wage. In January 2011 compared to January 2010, this reasoning is reversed: the ratio between the value of the Basic Food Basket and the Minimum Wage goes from 42.6–43.6%, indicating a loss in purchasing power.

Analyzing the evolution of the historical series over the last 15 years (2008–2022), it is noted that there has been a persistent increase in the national Minimum Wage, which had an average annual growth rate of 8.04%, compared to an average growth rate of 9.06% in the value of the Basic Food Basket. During this period, the average inflation, measured by the IPCA, was 5.92% per year. This caused the purchasing power of the Minimum Wage to remain around 2 (two) Basic Food Baskets in Espírito Santo (48.4%), with a downward trend starting in 2020.

In the case of Espírito Santo, the purchasing power of the Minimum Wage remained around 2 (two) Basic Food Baskets, with a downward trend starting in 2020. On average, the ratio between the value of the Basic Food Basket and the Minimum Wage for the period was around 48.4%, meaning that the value of the Basic Food Basket is equivalent to almost half of the income of this population.

Thus, considering the results found for the state of Espírito Santo, it is noted that the government and the Committees for the implementation of the Minimum Wage have not been able to effectively achieve the objective of Decree Law No. 399 for this population. A Basic Food Basket, necessary for the monthly consumption of 1 adult (not a family), already consumes 48.4% of a Minimum Wage, i.e., almost half of the income.

Finally, it is also noted that the last years of the historical series (2019–2022) were the period with the greatest loss of purchasing power for the population in several Brazilian capitals, likely reflecting the impact caused by the COVID-19 pandemic, which began in 2020. Figure 3 aids in this analysis, presenting the evolution of the value of the Basic Food Basket over the analyzed trienniums in various Brazilian states (with complete data available for the period), and the detailed results are provided in Annex 1 (Table 7).

According to the results presented in Fig. 3, it is noted that all Brazilian states showed a drop in the Basic Food Basket variation index in the third three-year period (2016–2019) in relation to the previous three-year period.

Analyzing the price variation in the three-year period of decline, purchasing the prices from 2016 and 2019, it is clear that, of all the capitals presented, only Vitória (1.1%), São Paulo (1.3%), Rio de Janeiro (1.5%), Florianópolis (1.6%) and Curitiba (2.4%) showed a positive change, all lower than 2.5%. The other capitals showed a negative variation in the price of the basic food basket, with emphasis on Belo Horizonte, Belém, Aracajú and Salvador, both with deflation greater than − 6.5%.

It is important to highlight that the value of the Basic Basket represents 23.12% of the IPCA value. In this way, it is possible to note its contribution to the drop in the value of the index in the third three-year period (2016–2019). Furthermore, Fig. 3 makes it clear that the influence of other components of free prices and administered prices on IPCA control cannot be ruled out.

Below, Fig. 4 illustrates the Cost of the Basic Food Basket (in Minimum Wages), by region (North, Northeast, Central-West, Southeast and South). It is important that of the 26 states of the federation (and the Federal District), only 16 had complete information available on the Dieese website. Therefore, to prepare Fig. 4 we considered the average between states with complete data (the complete list of states can be found in Table 5).

The data in Fig. 4 shows that, on average, the states in the Northeast region were those with the highest purchasing power per unit of salary, demonstrating a lower cost of living with the food item compared to the rest of the country. The states in the South and Southeast regions show a high loss of purchasing power in 2022 in relation to the entire historical series. In order to complement the analysis, Table 5 presents the results by state with complete information available.

Table 5. Cost of the Basic Basket (in Minimum Wages), by state, between August 2010 and August 2022 (measured by the quotient between the value of the Basic Basket and the value of the Minimum Wage).

According to the results presented in Table 5, the years 2016 and 2022 were the periods in which the cost of the Basic Basket assumed a greater proportion in relation to the value of the current Minimum Wage (average of 48% and 54%, respectively). This indicates that, although there has been an increase in the value of the Minimum Wage, families with an income equal to 01 (one) Minimum Wage lost their ability to consume Basic Food Baskets in the respective periods. It is noted that no state managed to come close to the assumptions listed in Law No. 399 regarding the commitment of the Minimum Wage to the food item.

4.2 Results at the Regional level (neighborhoods)

In this section, we present the results from the price collection in four supermarkets in the municipality of Vila Velha, resulting from the price collection carried out by the researchers, with a view to analyzing the impact of local price variations (at the neighborhood level), meeting the objective main part of this project. Figure 5 illustrates the price evolution of Basic Food Basket products in regional supermarkets (neighborhoods).

As can be seen in Fig. 5, in the period analyzed, prices in supermarkets showed a significant variation, with a range of R$43.18 (20.5%) in 2010, R$53.26 (19.0%) in 2013, R$ 16.00 (4.2%) in 2016, R$ 35.13 (7.9%) in 2019 and R$ 114.71 (16.1%) in 2022. From this perspective, the change of supermarket (neighborhood) to make purchases during the period would represent a saving of more than 15% in the value of purchases (in 2010, 2013 and 2022).

Among the establishments surveyed, the supermarket in the Praia das Gaivotas neighborhood was the one that showed the greatest savings on Basic Basket items in practically every year (with the exception of 2010), and the one in the Vila Velha Center had the highest Basic Basket prices. of the entire historical series.

Next, the periodic price evolution was analyzed, as illustrated in Fig. 6.

As can be seen in Fig. 6, the Basic Food Basket in the neighborhoods surveyed practically more than doubled in value (and almost tripled) between the years 2010 and 2022. It is important to highlight that, although the establishment in the Centro neighborhood had the lowest rate of variation, this is due to the fact that in 2010 this already presented the highest value for the Basic Basket. Furthermore, it is noted that the third triennium was the one with the lowest variation in food prices in relation to the others, presenting the lowest inflation rates in the period analyzed (previously illustrated in Fig. 1).

Although some supermarkets have shown themselves to be more competitive when comparing the value of their basic baskets with others, it was noted that some of their items had their prices readjusted negatively (deflated) and others positively (inflated), a range variation between − 59% and + 612%. Table 6 shows comparisons of price changes by product and by supermarket location. The darker shade indicates the products that had the biggest increases in price (and the lighter ones, the biggest decreases).

Table 6. Price Variation by Type of Basic Basket Product between the three-year periods 2010 and 2022.

The data presented in table 6 shows the existence of a wide range of values between official data and those perceived by consumers in their basic basket. This data reinforces the importance of collecting prices in supermarkets before making purchases, with a view to saving family income.

According to the results presented in table 6, the products that saw the sharpest increase in their prices in the period were tomatoes (3rd triennium), sugar (4th triennium) and oil (4th triennium), obtaining maximum increases of 612%, 247% and 236%, respectively; and those with the biggest price drops were tomatoes (1st triennium), sugar (3rd triennium) and potatoes (2nd triennium), achieving maximum drops of -59%, -50% and − 47%, respectively. The “hortifruti” items sold by supermarkets in the region were the products that had the greatest price fluctuation; and the items coffee, oil, sugar and meat were products that saw large increases in the 4th triennium, probably due to restrictions caused by the Covid-19 pandemic, negatively impacting family budgets.

Next, we analyze the representation of each product in the value of the Basic Basket (regional average) and its evolution (or involution) over the period. The results found for the most representative items (in terms of value) are illustrated in Fig. 7. The table with all the results is available in annex 2 (Table 8).

As can be seen in Fig. 7, the four items described (French bread, tomato, banana and meat) averaged almost two thirds (65%) of the total value of the Basic Basket in the period. Note the evolution of the price of the item tomatoes (vegetables), which in 2010 represented 5% of the value of the Basic Basket, more than tripled (16%) its representation by the end of the last three years (2022). This shows that the option to replace an item with another substitute in a given period, such as variation in the type of consumption of vegetables (carrots, pumpkin, etc.) or meat (beef, chicken, pork, fish), preserving their power nutrition, can bring substantial savings to families.

Figure 8 illustrates the average variation rate of the regional Basic Basket and its comparison with the average variation rate of the state Basic Basket (ES) and the IPCA over the three-year periods analyzed.

Figure 8 illustrates a very close relationship between the price variation of the state Basic Food Basket and the regional price (neighborhoods). It is noted that in the first three years, the regional Basic Basket had a higher rate of variation than the state and in the following three years, the cost of the basic basket had smaller increases in relation to the state one, surpassing it in the last three years.

Comparing the variation in Basic Food Baskets (regional and state) with the official inflation index (IPCA), a similar curve behavior is noted, although with less fluctuation, especially in the third three-year period analyzed (2016 to 2019). This phenomenon also occurred in other Brazilian states, as illustrated previously in Fig. 3.

Finally, Fig. 10 illustrates the evolution of the quotient between the value of the regional (neighborhoods) and state Basic Food Basket and the Minimum Wage, making it possible to compare purchasing power by analyzed region (and in relation to ES) and the official (state) index.

The results presented in Fig. 10 allow us to perform several analyses. Firstly, it is noted that the regions analyzed (neighborhoods) had greater purchasing power (in terms of consumption of Basic Food Baskets) than the state index published by DIEESE (with the exception of the Centro neighborhood, in the last three years).

Secondly, it shows that consumers who, in those years, made their supermarket purchases in the regions of Praia das Gaivotas, Coqueiral de Itaparica and Itapõa obtained a greater advantage (savings) than consumers who made them in the establishment in the Centro de Vila region Old. Due to the proximity between the neighborhoods, the results indicate that it is worth shopping in neighboring neighborhoods with a view to achieving greater savings, as this can exceed 15% of the value of purchases, as previously shown in Fig. 5.

Lastly, and not least, taking as a starting point the beginning of the historical series (2010), the results indicate that the purchasing power (in terms of consumption of Basic Food Baskets) in all regions has decreased over the years ( with the exception of the Praia das Gaivotas neighborhood, in 2013). Taking for example the prices charged at the Coqueiral de Itaparica supermarket, the Minimum Wage, in 2010, was capable of purchasing 3 (three) Basic Baskets (33% each); and at the end of 2016, just over 02 (two) Baskets (41% each). This indicates a loss of purchasing power of the population that makes purchases in these regions over the years and a distancing of the value of the Minimum Wage from the constitutional assumptions set out in Law 399/1938.

This work aimed to analyze the variation in the prices of Basic Basket products in regions of the city of Vila Velha between the years 2010 and 2022 with the aim of highlighting an inflation index that is closer to the local reality and that measures in a more realistic way the purchasing power of the population that has a monthly income equivalent to 01 (one) Minimum Wage. It also analyzes the evolution of purchasing power in terms of Basic Food Baskets in several Brazilian states, with a special focus on the region under study.

Analyzing the evolution of the historical series of the analyzed period, the preliminary results indicate a persistent evolution in the national Minimum Wage over the years, however its purchasing power for family food, measured by the quotient between the Value of the Basic Basket and the value of the Minimum Wage demonstrated loss of purchasing power for the population of all Brazilian states. Among them, the states in the Northeast region were those with the highest purchasing power per unit of Minimum Wage.

Analyzing regional data (neighborhoods), the results also indicate that the purchasing power, in terms of consumption of Basic Food Baskets, in all regions analyzed has decreased over the years.

By collecting prices and the results obtained from the research carried out, the variation in prices of Basic Basket products was observed throughout the years 2010 and 2022 in regional supermarkets and the best and worst places for the shopping: the supermarket in the Praia das Gaivotas neighborhood was the one that showed the greatest savings on Basic Basket items in practically every year (with the exception of 2010), and the supermarket in the Vila Velha Center had the highest Basic Basket prices. entire historical series.

These results indicate that it is worth shopping in neighboring neighborhoods with a view to achieving greater savings, as this can exceed 15% of the value of purchases, demonstrating the importance of researching prices in supermarkets and the need to determine regional indices for the real knowledge of consumers regarding the veracity of price variations in their locality, as each municipality has its peculiarities that are not considered by a general index.

Comparing the variation in Basic Food Baskets (regional and state) with the official inflation index (IPCA), a very similar curve behavior was found, although with less fluctuation, especially in the third three-year period analyzed (2016 to 2019). Given these results, it is possible to note that the calculation of consumer price inflation in Brazil, which uses the IPCA as a guiding index, can be greatly influenced by the other components that weight the index and that make up free prices and administered prices.

Finally, for future work, it is advisable to check price variations in regions with different purchasing power, since research suggested that more traditional neighborhoods had higher price adjustment rates than newer neighborhoods.

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The authors declare no competing interests.

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Inflation: an analysis between the variation of the Basic Food Basket value and the regional Purchasing Power

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Abstract

Figures

1. Introduction

2. Theoretical Framework

2.1 Concept of Inflation

2.2 Inflation Targeting Regime

2.3 Consumer purchasing power

3. Methodological Procedures

4. Analysis of the Results

4.1 State-Level Results

4.2 Results at the Regional level (neighborhoods)

5 Conclusion

References

Additional Declarations

Supplementary Files

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