Furniture Production Increases in February, and Prices Do Too

Overall industrial production in Brazil fell 0.7% in February, compared to January, thus interrupting a sequence of nine consecutive increases compared to the previous month. The worsening of the pandemic, the suspension of the Emergency Aid (which will return under new conditions now in April) and instability in the labor market explain the decline in industry, says the Brazilian Institute of Geography and Statistics (IBGE), responsible for the Monthly Industrial Survey – Physical Production (PIM – PF). But how is furniture production doing?

Well, furniture production, on the other hand, continues to rise, having grown 0.7% compared to January 2021. With February's performance, then, furniture production accumulates an increase of 5.5% in the first two months of the year in the same comparison with 2020. In the 12-month variation, the drop is 2.9%.

The furniture industry's performance at the beginning of 2021 could have been better if it weren't for the crisis in the supply of inputs and raw materials, which, in addition to scarcity, generates a real increase in the value of production. Also according to the IBGE, the price of furniture in the industry increased by 3.08% in the second month of the year. Thus, accumulating an increase of 28% in the 12 months ending in February of this year (most recent survey). This is the highest level since the Producer Price Index survey began in 2009.

Recap: Crisis in furniture supply and production
The interruption of trade and production, followed by an overheated demand when activities resumed (V-shaped recovery), led to an imbalance between supply and demand at all stages of the chain, including the supply chain. During the crisis, adjustments were also held back due to the appreciation of the dollar and the depreciation of the real. This led suppliers to readjust their prices in an explosive manner at a later stage. The exchange rate variation and the strong recovery of the Chinese economy, putting pressure on the global raw materials market, also resulted in even more strangulation and an increase, especially in logistics costs.

With the general expectation that the situation would stabilize in the first half of 2021, unfortunately the sector is still not seeing any signs of improvement. The problem continues, among other issues, due to the disruption of production processes, the exchange rate imbalance and the very significant increase in the cost of international freight due to the pandemic. The situation has been monitored by sector entities together with the Federal Government.

Last week, the government announced the Provisional Measure on the Business Environment (MPAN) that aims to promote a series of improvements for Brazil. The document brings legislative changes to simplify the opening of companies, protect minority investors and facilitate foreign trade in goods and services, among others. More measures that endorse the aforementioned aspects should be announced in the coming days. We're keeping an eye on it!