IGP-M Accelerates to 0.93% in September: What Changes for Renters

The General Market Price Index (IGP-M) recorded an increase of 0.93% in the first preview for September, according to data released by the Getulio Vargas Foundation. This figure represents a significant acceleration compared to the same reading in August, when the indicator only advanced by 0.26%. The difference is substantial: the pace has nearly quadrupled in one month.

For those who follow the financial market superficially, the IGP-M may seem just another inflation index. However, it carries a disproportionate weight in the real economy. Millions of rental contracts in Brazil are still adjusted by this indicator, and its acceleration has a direct effect on the wallets of tenants and the profitability of property owners and real estate funds.

What Drove the Increase in IGP-M in the September Preview

The main driver of the acceleration was the Broad Producer Price Index, which jumped from 0.28% in the August preview to 1.26% in September. This component accounts for about 60% of the total weight of the IGP-M and reflects price variations in wholesale, including agricultural and industrial commodities.

The rise in producer prices often anticipates inflationary pressures that eventually reach the final consumer. When input costs rise with such intensity, the production chain passes on at least part of the impact. It is a signal that investors and portfolio managers need to monitor closely.

The Consumer Price Index within the IGP-M also reversed direction: it went from a deflation of 0.09% in August to an increase of 0.09% in September. Although the variation seems modest, the change in direction is significant. It indicates that the pressure is not limited to wholesale.

Conversely, the National Construction Cost Index slowed from 0.75% to 0.35%. The cooling in this component prevents an even more pressured reading of the full index and suggests that the construction sector may be absorbing part of the cost increases without fully passing them on, as we analyzed in our coverage of the financial sector.

How the Acceleration of IGP-M Affects Renters

Despite a gradual migration of real estate contracts to the IPCA in recent years, the IGP-M is still a reference for a significant portion of residential and commercial rents in Brazil. When the index accumulates consistent increases, the annual adjustment can surprise tenants who do not follow the trajectory of the indicator.

It is important to understand the context: the accumulated IGP-M over 12 months is what effectively enters the adjustment account. A one-month preview does not define the fate of the contract but signals the trend. If the next months maintain this pace, the accumulation will rise rapidly.

For property owners and investors in real estate funds, the dynamics are the opposite. Rents indexed to the IGP-M tend to generate higher revenues in scenarios of index acceleration. This asymmetry is one of the factors that makes the choice of indexer so strategic when signing or renegotiating a contract.

What Producer Prices Indicate About Future Inflation

The IPA, the dominant component of the IGP-M, acts as a leading indicator of consumer inflation. When agricultural commodities rise due to climatic or exchange rate issues, the effect takes weeks to months to reach supermarket shelves. When industrial inputs become more expensive, the pass-through tends to be quicker in sectors with less competition.

The 1.26% increase in the IPA in this preview cannot be read in isolation. It needs to be cross-referenced with exchange rate behavior, which directly influences the prices of commodities quoted in dollars, and with the monetary policy of the Central Bank. Higher interest rates tend to contain pass-throughs but do not eliminate cost pressures at the source.

For those investing in fixed income, the acceleration of the IGP-M reinforces the thesis that Brazilian inflation has multiple layers. The IPCA may be stable while the IGP-M surges, and vice versa. Understanding this difference is essential for building a truly protected portfolio, as we have detailed in previous analyses on inflation protection.

What to Watch for in Upcoming Data

The preview is just that: a partial reading. The final IGP-M data for September will be released in the coming weeks and may confirm or temper the trend. Historically, the difference between preview and final figures tends to be moderate, but it is not uncommon to see significant revisions when there is volatility in commodities mid-month.

Three points deserve attention in the coming weeks. First, the behavior of oil, which has a direct influence on the industrial IPA. Second, the dynamics of the exchange rate, which amplifies or dampens variations in international prices. Third, the Copom's decisions regarding the Selic rate, which alter inflation expectations and, consequently, the market's willingness to pass on costs.

The acceleration of the IGP-M does not, by itself, mean that inflation is out of control. However, it is a data point that requires recalibration of expectations, especially for those with contracts indexed to the index or positions in assets sensitive to wholesale inflation. The final reading for the month will be decisive in confirming whether we are facing a temporary spike or a new trend.

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