Brazil's Inflation Preview Jumps to 0.70%, Pressuring Rate Path
The September reversal of the Itaipu electricity bonus lifted household power bills and made the Central Bank more cautious about cutting the Selic.
Overview
- The IBGE's IPCA-15, released Friday, recorded a 0.70% rise in September and a 12-month rate of 4.47%, reversing August's 0.40% drop.
- Residential electricity rose 7.42% as the temporary Itaipu bonus that cut August bills expired, and that single item contributed about 0.29 percentage point to the IPCA-15.
- The Central Bank said restrictive policy is slowing activity and lowered its GDP forecasts to 1.8% for 2026 and 1.4% for 2027 while holding the Selic at 13.75%.
- Markets reacted with the Ibovespa down about 1% and the real weakening to roughly R$5.19, prompting the Central Bank to sell US$1 billion in two line auctions to add dollar liquidity.
- Consumer confidence and construction confidence fell and construction costs rose, signaling softer demand, and upcoming full IPCA figures, services inflation, and fiscal reports will shape whether rate cuts proceed more slowly.