Brazil: Inflation rises in line with market expectations in September
Latest reading: Inflation inched up to 4.4% in September, following August’s 4.2%; the acceleration was in line with what markets had projected. Looking at the details of the release, prices for both food plus housing and utilities rose at a quicker pace in September compared to the previous month. The worst drought on record is pressuring electricity and food prices, limiting the ability of elevated interest rates to tame price pressures.
The trend pointed down slightly, with annual average inflation coming in at 4.3% in September (August: 4.4%). Meanwhile, core inflation ticked up to 3.9% in September from the previous month’s 3.8%.
Finally, consumer prices increased a seasonally adjusted 0.44% over the previous month in September, contrasting the 0.02% fall logged in August. September’s uptick marked the highest reading since May.
Outlook: Our Consensus is for inflation to remain close to current levels through December, and then to trend down slightly in H1 2025 and further in H2 2025. The moderation in price pressures will be slow, however, and inflation is seen above the Central Bank’s 3.0% target through our forecast horizon to 2029 despite remaining within the plus or minus 1.5 percentage points tolerance band. Extreme weather events and a looser fiscal policy stance are key upside risks, while changes in the monetary policy stance and the strength of the real are two-sided risks.