Brazil Inflation Falls Back Inside Target as July IPCA Slows

Overview

• The official IPCA index rose 0.07% in July and stood at 4.44% over the past 12 months, returning below the 4.5% ceiling of the central bank’s target range.
• The main drivers of the July slowdown were sharp seasonal falls in many fresh-food items and relief in fuel prices, while eating out and services remained stronger and electricity costs rose.
• The Central Bank cut the Selic rate to 14% earlier in August and says future moves will be decided meeting by meeting, with markets pricing a possible additional 0.25 percentage point cut in September depending on new data.
• The IBGE reading Tuesday provided only partial relief because food prices have climbed far more than other items over recent years, so many households may not feel immediate improvement in living costs.
• Economists warn that a strong El Niño, higher global commodity or dollar pressures and renewed geopolitical shocks could quickly reverse the disinflation, making August and September data crucial for policy and for the election debate.