Brazil Posts Unexpected Deflation as U.S. Inflation Accelerates

Overview

• Brazil's IPCA fell 0.32% in August and stood at 4.22% year‑on‑year, a result published Friday that was driven mainly by a 7.63% drop in residential electricity after a one‑month Itaipu credit.
• The same day U.S. CPI rose 0.4% in August and 3.4% year‑on‑year, with gasoline and energy pushing the monthly gain and the core measure coming in slightly above expectations.
• Markets shifted sharply after both reports as oil prices and Middle East tensions added volatility, sending Treasury yields higher and prompting a rebound in U.S. equity futures.
• An early September IGP‑M preview showed a 0.93% rise led by producer prices (IPA +1.26%), signaling upstream price pressures in Brazil that could feed into consumer inflation later.
• Policy implications are split: economists say Brazil's deflation gives cover for another 25 bps Selic cut but the Itaipu effect is temporary, while U.S. data increased market odds of a Fed hike next week and kept policymakers alert to energy and services risks.