What is IGP-M?

The IGP-M stands for General Market Price Index. It has been measured since 1940 and its calculation is made by the Brazilian Institute of Economics of the Getulio Vargas Foundation (FGV).

Its main function is to be an indicator of price variation in the Brazilian economy using inflation as a base. 

It is widely known by the name of “rental inflation”.since its value is used as a parameter in making readjustments in rental contracts.

It is necessary to pay attention to this index, since it directly influences your finances as it is related to everyday expenses such as:

• tuition fees for schools and universities; 
• electricity bills;
• life insurances; e
• health plans.

In other words, rent adjustment is not its only use.

How is the IGP-M calculated? 

There are some modalities for its use. However, the most common is the IGP-M accumulated. For that, it is necessary to follow the evolution of the monthly IGP-M, where its measurement starts between the 21st day of the previous month and the 20th day of the month in force.

This index comprises the Wholesale Price Index – Market (IPA-M), Consumer Price Index – Market (IPC-M) and National Index of Construction Cost – Market (INCC-M), with weights of 60%, 30% and 10%. 

As previously mentioned, the measurement of the IGP-M is directly linked to inflation, which governs the Brazilian economic scenario. 

A rise in prices indicates that inflation is high. And when this happens, it can represent a lack of control in the macroeconomic scenario.

However, a rise in the IGP-M in the month may not determine an entire economic scenario. This is because, in some periods, it may rise, pulled by some other value that the index takes into consideration, but without having a great influence on the final value. 

That is why it is so important to consider only the final value given by FGV.

What is the Accumulated IGP-M?

The accumulated IGP-M is the concentration of all the monthly IGP-M values.

That is, the values of the index from January to December of the year in force are added. From this sum, we arrive at the accumulated IGP-M, which corresponds to the 12 months of the year. 

The IGP-M accumulated is the form more used for who uses this index as base to make the readjustment of values, as the rent. But it is not uncommon that basic expenses, such as electric energy, suffer the adjustment of the monthly IGP-M, which may be of rise or fall.

The Covid-19 pandemic greatly influenced the rise in the index, as well as the devaluation of the real and agribusiness exports. 

To get an idea, the IGP-M rose by about 15%, compared to 2019, where the cumulative figure was 7.30%.

This was the highest variation since 2002, when the index stood at 25.31% accumulation. The value scared many, especially those who live in rented accommodation. So, the way was to try to negotiate with the owner of the property a way to readjust the rent outside the index.

It is still too early to predict this year’s accumulated IGP-M. However, it is expected a value very similar or higher than the accumulated in 2020, as Brazil has been going through a second wave of Covid-19. 

Furthermore, by March, the index had accumulated to 8.26%, which is considered a high value for only three months.

The following is a demonstration of the last two years of IGP-M. The data were extracted from IBRE-FGV.

What is the difference between IGP-M, IGP-10 and IGP-DI?

All three are versions of the General Price Index (IGP), an indicator of the level of economic activity produced by the FGV’s Brazilian Institute of Economy.

Below is an explanation of the difference between them.

• IGP-10: It works based on prices calculated between the 11th day of the previous month 11 of the previous month to the 10th day of the month of collection;
• IGP-DI: Measures the Domestic Availability and collection runs from day 1 to 30;
• IGP-M: Gathers information about the price variation from the 21 of the previous month to the 20th of the month of collection.

Are IGP-M and IPCA the same?

Yes and no. It may seem confusing, but the explanation is quite simple. The IGP-M and the IPCA are equal in the sense that they both measure inflation. However, the Broad Consumer Price Index is measured by the Brazilian Institute of Geography and Statistics, the IBGE.

Now, the IGP-M and the IPCA are different in the sense how this measurement is made.

While the IGP-M takes into account three other indexes to generate its value, the IPCA takes into account only the prices of commerce and services, which the final consumer pays when making a purchase.

It is as if the IGP-M considered all the stages of production, such as, for example, the exploration of steel, which will be used in the manufacture of a car that will later be sold in a shop.

What are the impacts of the IGP-M on the economy and on investments?

The IGP-M is an economic indicator which guides the adjustment of values of goods and services in various sectors of the economy. Its main objective is to make the sectors equalise their price lists, with the increase in prices as its axis.

This means that when the IGP-M rises, things become more expensive. As a result, money is devalued, since income (such as salaries, for example) is not adjusted according to monthly inflation.

Besides affecting the economy, IGP-M also influences the profitability of investments. Therefore, those who invest their money need to understand what the IGP-M impacts on the economy and the financial market.

The main and best way to protect yourself from the variation of the IGP-M is to have investments that compensate for the increase in the index. In other words, this means that it is important to diversify assets in investments linked to the IPCA (inflation), real estate and shares of good companies.

This attitude strengthens the importance of having a varied investment portfolio, because in case of a rise in a specific segment, you are protected.

How can FinanceOne help you calculate?

Use the FinanceOne calculator to find out the final value, without having to look for IPA-M, IPC-M and INCC-M. We use the value given by the Brazilian Institute of Economy of the FGV. 

Just put the value, the start date and the end date for when the value should be readjusted. In addition, we will give the monthly percentage of how much it went up or down in each month and, finally, the annual sum of these adjustments.

The FinanceOne calculator will simplify your life. So you save time and don’t have to worry about the other indexes that IGP-M considers.